by ilene - May 26th, 2015 10:50 am
Courtesy of Pam Martens.
Troy Rohrbaugh, Head of Foreign Exchange Trading at JPMorgan Chase, Chairs the New York Fed’s Best Practices Group for Foreign Exchange Trading. JPMorgan Chase Just Pleaded Guilty to a Felony for Conspiring to Rig Foreign Exchange Trading.
As the U.S. Department of Labor deliberates giving JPMorgan Chase a waiver to continue business as usual after it pleaded guilty to a felony charge for engaging in a multi-bank conspiracy to rig foreign currency trading, a letter the bank sent to its foreign currency customers should become Exhibit A in the deliberations. The letter effectively tells JPMorgan’s customers, here’s how we’re going to continue to rip your face off.
Two sections of the letter stand out in particular. One section reads:
“As a market maker that manages a portfolio of positions for multiple counterparties’ competing interests, as well as JPMorgan’s own interests, JPMorgan acts as principal and may trade prior to or alongside a counterparty’s transaction to execute transactions for JPMorgan…” (Italic emphasis added.)
Most of the general public believes that proprietary trading (trading for the house) was outlawed by the Volcker Rule under the Dodd-Frank financial reform legislation. Most of the public believes that trading ahead of your client’s order is called front-running and is illegal. On both points, the public is dead wrong. First, the Volcker Rule has yet to be implemented. Its effective date continues to be pushed forward. Secondly, foreign exchange spot trading between big banks and institutions (like the folks who manage your pension money) is an unregulated market left to the non-legally-binding “best practice” agreements by the biggest banks. As we reported on May 14, the Chair of the group drawing up these best practices is Troy Rohrbaugh, the head of Foreign Exchange trading at JPMorgan Chase since 2005 – including the periods for which the bank has been charged with felony conduct.
Making this best practice committee even more specious is that it is sponsored by the Federal Reserve Bank of New York, part of the Federal Reserve which just fined JPMorgan Chase $342 million for lacking “adequate Firm-wide governance, risk management, compliance and audit policies and procedures to ensure that the Firm’s Covered FX [foreign exchange trading] Activities conducted…
by ilene - May 25th, 2015 3:12 pm
Financial Markets and Economy
There’s no denying the effect that fees have on investments. While the difference between a fee of 0.5% and 0.25% looks tiny on paper, apply it to an index fund over a quarter-century or more of investing and let the effects of compounding work on it and you can easily see a worker winding up with tens of thousands of dollars less on account at retirement.
So it’s easy to see how and why the case protects workers and retirement savers.
The potential problems from the ruling are much harder to see, but they’re just beneath the surface now and likely to surface as the effects of the ruling play out.
7 Lies Investors Tell Themselves (Market Watch)
After six years of rising U.S. stock prices, investors are no doubt richer. But they may be thinking a little less clearly.
“In a bull market, there’s a tendency for investors to think they’re brilliant,” says Brad Barber, a finance professor at the University of California, Davis, and an expert in behavioral finance. Indeed, as share prices climb, investors’ confidence grows and they start making all kinds of dubious claims.
Here are seven comments you have probably heard from friends—and that may have escaped your own lips.
Here's your complete preview of this week's big economic events (Business Insider)
It's a short week in America as everyone takes Monday off to celebrate Memorial Day and enjoy some barbecue with their friends and family.
Surely, they'll also be
by ilene - May 25th, 2015 1:58 pm
Courtesy of Mish.
Andrzej Duda outed president Bronis?aw Komorowski, the the pro-Brussels incumbent centrist Civic Platform party president, in an election over the weekend. Komorowski was expected to win.
The Duda Victory Sent Shockwaves Through Polish Politics, and no doubt Brussels as well.
The win for the socially conservative, nationalist, eurosceptic party, which saw Mr Duda oust Bronis?aw Komorowski, the government-backed incumbent from the presidential palace, represents a significant lurch to the right in Polish politics. It has sent shockwaves through the country’s political establishment that could ultimately topple the ruling party in October after eight years in power.
Backed by both the country’s restless, anti-establishment youth and its conservative pensioners, Mr Duda’s election, which was unthinkable just a few months ago, represents a significant and far-reaching rejection of the ruling Civic Platform party.
Mr Duda has called for a repatriation of more powers from Brussels to individual member states, an effort that chimes with British prime minister David Cameron’s attempts to renegotiate the UK’s relationship with Europe ahead of a referendum on its EU membership.
The vote illustrated deep divides in Polish society. Despite headline growth figures since 2008 that are almost twice as large as any other EU member, the fruits of Poland’s economic boom have not been equally shared.
Strikingly, all of the country’s poorer eastern regions backed Mr Duda, while the more prosperous western regions supported Mr Komorowski without exception.
In rural areas, 62 per cent of voters backed Mr Duda, according to an exit poll, while Mr Komorowski carried 59 per cent of votes from the country’s cities.
Disenchantment with Brussels Spreads
The Polish unemployment rate is a modest 7.8%. Youth unemployment is 20.5% as of March. Both numbers are better than France and far better than Spain.
by ilene - May 25th, 2015 10:46 am
Courtesy of Pam Martens.
Robert Reich, former Labor Secretary in Bill Clinton’s administration and currently Professor of Public Policy at the University of California at Berkeley, is an important voice for tackling income inequality in America by bringing back the Glass-Steagall Act, busting up the too-big-to-fail banks, and imposing a securities transaction tax.
In 2013, Reich released a documentary, “Inequality for All,” that demonstrated that there is a finite equilibrium of income distribution at which the U.S. economy can grow and prosper. In 1928 and 2007, the year before each of the greatest financial crashes in our nation’s history, income inequality peaked. When workers are stripped of an adequate share of the nation’s income, they are not able to function as consumers, creating a vicious cycle of layoffs and slow economic growth – the situation the U.S. has been mired in since the Wall Street crash of 2008.
Unfortunately, Reich, an otherwise clear-eyed progressive has a deep blind spot. Her name is Hillary Clinton. In a column posted to his blog last month, Reich had this to say about Hillary:
“In declaring her candidacy for President she said ‘The deck is stacked in favor of those at the top. Everyday Americans need a champion and I want to be that champion.’
“Exactly the right words, but will she deliver?
“Some wonder about the strength of her values and ideals. I don’t. I’ve known her since she was 19 years old, and have no doubt where her heart is. For her entire career she’s been deeply committed to equal opportunity and upward mobility.”
This is more than a dangerous, rickety limb for Reich to be climbing out on when the financial stability of the nation hangs in the balance. During the primary challenge in 2008 between Barack Obama and Hillary, Reich made headlines by endorsing Obama despite his long-term friendship with the Clintons. That decision was at least partly influenced by what Reich called Hillary Rodham Clinton’s (HRC’s) “Odd Economics.” In an April 2008 post on his blog, Reich appeared to intuitively understand that the same men who deregulated Wall Street and mushroomed the derivatives gambling casino under Bill Clinton would be back in power in a Hillary presidency.
by ilene - May 24th, 2015 8:02 pm
Courtesy of Robert Reich
Last week’s settlement between the Justice Department and five giant banks reveals the appalling weakness of modern antitrust.
The banks had engaged in the biggest price-fixing conspiracy in modern history. Their self-described “cartel” used an exclusive electronic chat room and coded language to manipulate the $5.3 trillion-a-day currency exchange market. It was a “brazen display of collusion” that went on for years, said Attorney General Loretta Lynch.
But there will be no trial, no executive will go to jail, the banks can continue to gamble in the same currency markets, and the fines – although large – are a fraction of the banks’ potential gains and will be treated by the banks as costs of doing business.
America used to have antitrust laws that permanently stopped corporations from monopolizing markets, and often broke up the biggest culprits.
No longer. Now, giant corporations are taking over the economy – and they’re busily weakening antitrust enforcement.
The result has been higher prices for the many, and higher profits for the few. It’s a hidden upward redistribution from the majority of Americans to corporate executives and wealthy shareholders.
Wall Street’s five largest banks now account for 44 percent of America’s banking assets – up from about 25 percent before the crash of 2008 and 10 percent in 1990. That means higher fees and interest rates on loans, as well as a greater risk of another “too-big-to-fail” bailout.
But politicians don’t dare bust them up because Wall Street pays part of their campaign expenses.
Similar upward distributions are occurring elsewhere in the economy.
Americans spend far more on medications per person than do citizens in any other developed country, even though the typical American takes fewer prescription drugs. A big reason is the power of pharmaceutical companies to keep their patents going way beyond the twenty years they’re supposed to run.
Drug companies pay the makers of generic drugs to delay cheaper versions. Such “pay-for-delay” agreements are illegal in other advanced economies, but antitrust enforcement hasn’t laid a finger on them in America. They cost you and
Angry Voters Hand Spain’s Ruling Party Heavy Regional Losses; Podemos Scores Upset Victories in Barcelona, Madrid
by ilene - May 24th, 2015 7:44 pm
Courtesy of Mish.
The Spanish economy will supposedly grow at three percent. The bad news is Spanish employment is well over 20 percent and is also expected to stay that way.
Angry voters unhappy with that setup took it out big time on PP, the party of prime minister Mariano Rajoy.
Please consider PP Suffers Heavy Regional Losses.
Spain’s ruling Popular party suffered heavy losses in Sunday’s string of regional and local elections, as two upstart movements made dramatic gains at the expense of the country’s established parties.
The PP still emerged as the biggest party in nine of the 13 regional contests, but its ability to head governments at both the regional and local level was severely curtailed. According to preliminary results, the party of Mariano Rajoy, Spain’s prime minister, failed to obtain an absolute majority even in its historical strongholds — meaning it can govern only with the support of at least one of its rivals.
The PP suffered a particularly marked decline in Madrid. Esperanza Aguirre, its high-profile candidate for mayor, beat a coalition of leftwing groups only by the smallest of margins but has little prospect of forming an administration. A similar leftist alliance also scored an upset triumph in Barcelona, meaning Spain’s two principal cities are now likely to be led by a pair of charismatic, leftwing women from outside the political establishment: Manuela Carmena in Madrid and Ada Colau in Barcelona.
The ruling party’s losses were mostly the gain of two political newcomers, the anti-austerity Podemos movement and the centrist Ciudadanos party. Both were on track to enter regional parliaments in force in several key regions, potentially handing them the role of kingmakers. Podemos was also the leading force behind the two municipal victories in Madrid and Barcelona.
Sunday´s elections took place in 13 of Spain’s 17 regions and in more than 8,100 municipalities, providing a crucial test of the national mood ahead of general elections later this year. The overall picture, based on preliminary results, confirm what polls have been saying for months: frustrated voters are turning away from the established parties in ever greater numbers, converting Spain’s decades-old two-party regime into a much more volatile four-horse race.
Like Syriza in Greece, Podemos had been running on an anti-austerity platform. Podemos went even further, threatening to exit the euro.
by ilene - May 24th, 2015 4:22 pm
Courtesy of John Rubino.
The Chinese stock market’s spectacular run is turning into a stagger:
(AFP) — Two of Hong Kong’s best-performing stocks plunged more than 40 percent Thursday, a day after a mysterious crash of almost 50 percent in Chinese solar firm Hanergy that saw almost $20 billion wiped off its market value.
Goldin Financial sank 43.34 percent to HK$17.48 and Goldin Properties crashed 40.91 percent to HK$14.36, after soaring more than 300 percent since the start of January, according to Bloomberg News.
The drop slashed the firms’ combined market value by more than $20 billion.
The companies, which have interests ranging from property development in Hong Kong and China to vineyards in California and France are owned by Chinese tycoon Pan Sutong.
The dramatic sell-off came after a 47 percent dive in Beijing-based solar energy firm Hanergy Thin Film Power (HTF).
Trading in the firm was suspended after 24 minutes, but not before $19 billion was struck off the firm’s value. The company said it would make an announcement containing “insider information” in the wake of the suspension, although it has not yet done so. HTF had surged more than sixfold in the past year, making it the world’s largest solar power company by market value, but prompting questions over its valuation and revenue sources.
Even by tech standards, those are big, fast moves. And the bull market in which they occurred is also pretty epic. From London’s Telegraph:
Last week I wrote that the market in German Bunds had become a bit too exciting for some investors. By the orderly standards of fixed income investing, the ups and downs of bond prices may have been a bit frisky. But they pale into insignificance compared to what’s going on in Shanghai and Shenzhen. China is becoming the Wild West of investment.
Since the start of the year, the Shanghai index has risen by 37pc and its sister exchange in Shenzhen is up by 53pc. Over the past year the two markets have risen by 122pc and 96pc respectively. That’s punchy enough, but it fails to tell the whole story. Many individual shares have done much more. Beijing Baofeng Technology, a video company, rose by 44pc on its first day on the Shenzhen market
by ilene - May 24th, 2015 1:11 pm
Greece Will Default on June IMF Repayment Says Interior Minister; Greek Choice Same As It's Always Been
Courtesy of Mish.
One way or another the crisis in Greece is highly likely to come to a head in June.
Greek finances are in such sorry shape it needs a third bailout or it will be unable to meet payment obligations in August. And unless an agreement in June is reached to unleash more funds, Greece will not make it to August.
Today we learn, Interior minister warns Greece will default on June IMF repayment.
Greece has again threatened to default on loan repayments due to the International Monetary Fund, saying it will be unable to meet pension and wage bills in June and also reimburse €1.6bn owed to the IMF without a bailout deal with creditors.
“The money won’t be given . . . It isn’t there to be given,” Nikos Voutsis, the interior minister, told the Greek television station Mega.
He claimed the EU and IMF were pressuring Greece to make unacceptable concessions in the current bailout talks in return for unlocking €7.2bn of aid frozen since last year.
Predicting when Athens will run out of cash has proven a fraught affair for eurozone officials, who have been bracing for default since March.
Given the repeated warnings from Greek officials that bankruptcy is imminent, some officials have begun to disregard such threats, believing Athens is now using them as a negotiating tactic.
But a senior Greek official with knowledge of the government’s funding position confirmed that Athens would be unable to make the IMF payments, which fall due in four separate instalments of more than €300m each between June 5 and June 19, unless a deal is struck.
“We won’t accept blackmail that says it’s either liquidity with a memorandum [the Greek term for a bailout programme] or bankruptcy”, Mr Voutsis said.
The government has ruled out a domestic default on payment obligations to Greece’s 2.9m pensioners and 600,000 public sector workers, saying they have first claim on the country’s shrinking resources.
People who have spoken to Mr Tsipras say he is in a dour mood and willing to acknowledge the serious risk of an accident in coming weeks….
by ilene - May 24th, 2015 12:20 pm
If the S&P 500 does not have a 5% correction this year, it will be the first time in 20 years. And it's been 3.6 years since the last 10% correction. And trailing and forward PEs are relatively high. In the low interest rate environment, higher-than-normal stock prices are the new normal, but how much higher? And should we expect a reset with the Fed's plans to ease the interest rate higher?
Courtesy of Joshua M Brown
Deutsche Bank is out with a piece of research this weekend mentioning the fact that the S&P 500 has just broken a record high thanks to a median trailing PE ratio of over 18 – the highest we’ve seen since 2010. They note that this PE ratio is 12% above the long-term average going back to 1960. The forward PE of 17.3 times earnings expectations over the coming four quarters is 22% above the historical median. David Bianco attributes this, as almost all of us do, to the incredibly low yields on bonds and their effect on the equity risk premium.
More interestingly, Bianco includes an acknowledgement that it has now been 916 days since the last 10% correction for the index, or 3.6 years (last October’s Ebola /ISIS sell-off was 9-and-change percent intra-day). We’ve not had even a 5% correction so far in 2015 despite a spate of elevated volatility earlier in the year.
Here’s David Bianco and Ju Wang:
We believe the probability of a 5%+ dip is high this summer and our tactical call remains Down given the S&P now at an even higher PE than a year ago, heightened uncertainty in 10yr yields, weak earnings growth and continued soft economic data. We haven’t had a 5%+ dip this year. Historically 5%+ dips are common and happen at least once a year since 1960, except 1964, 1993 & 1995. It has been 916 trading days (3.6 years) since a 10% correction. Selloff triggers could be a further rise in 10yr yields especially if UE keeps falling amidst slow economic growth and Fed remains unclear on first hike timing, or a jump in the dollar upon the Fed expressing firm intentions to hike in Sept.
S&P hits record high on 18 trailing PE, PE will be sensitive to Treasury yields
Deutsche Bank – May 22nd, 2015
Picture by Geralt at Pixabay.
by ilene - May 24th, 2015 10:44 am
Courtesy of Marc to Market
The US dollar's recovery last week may not get the kind of fundamental support that medium and long-term investors would like to see to raise the confidence that the two-month correction has run its course.
Owing to a greater deterioration of net exports and a smaller than expected inventory build, Q1 GDP is likely to be revised sharply lower. The 0.2% expansion may turn into a 0.8-1.0% contraction. Although it is backward looking, especially given that the second quarter is two-thirds when the revision is announced, it does have an important implication.
It means that rather than raise rates in June, as many of us had previously anticipated, the Federal Reserve will have to cut its GDP growth forecast for the entire year. In March, the Fed's central tendency forecast, which excludes the three highest and three lowest forecasts was 2.3%-2.7%. It is possible that growth in the first half is flat or barely positive. This means that even if growth in the second half averages 3%, GDP for the entire year would be about 1.5%. To reach the current Fed forecast, the economy would have to expand by close to 5% in H2.
The projection for growth in the current quarter could edge higher if the details of the April durable goods orders report on May 26 is firmer. The headline activity may slip on the back of lower aircraft orders. Boeing reported its April orders slipped to 37 from 39 in March. However, orders, excluding defense and aircraft and shipments of the same, which are inputs for capex and GDP forecasts, should both be above Q1 averages.
Separately, the Richmond and Dallas Fed manufacturing surveys, and the Chicago PMI and Milwaukee ISM will also likely boost confidence that the world's largest economy is not recession-bound. Whereas the Atlanta Fed's GDPNow suggests the US economy is tracking 0.7% growth in Q2, we expect the incoming data to gradually lift this estimate. The increase in aggregate income (~5% year-over-year) and the increase in savings (~$125 bln in Q1) will likely provide the fuel for stronger consumption going forward.