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by ilene - March 11th, 2010 12:17 pm
By Senator Ted Kaufman (via Clusterstock)
(In a speech on the Senate floor this morning, Ted Kaufman (D-Del.) blasted current financial reform proposals. He called for reform that sets strict limits on the size of banks and doesn’t depend on regulatory discretion.)
Introduction: Where the Burden of Proof Lies
Financial regulatory reform is perhaps the most important legislation that the Congress will address for many years to come. Because if we don’t get it right, the consequences of another financial meltdown could truly be devastating.
In the Senate, as we continue to move closer to consideration of a landmark bill, however, we are still far short of addressing some of the fundamental problems – particularly that of “too big to fail” – that caused the last crisis and already have planted the seeds for the next one. And this is happening after months of careful deliberation and negotiations, and just a year and a half after the virtual meltdown of our entire financial system.
Following the Great Depression, the Congress built a legal and regulatory edifice that endured for decades. One of the cornerstones of that edifice was the Glass-Steagall Act, which established a firewall between commercial and investment banking activities. Another was a federally guaranteed insurance fund to back up bank deposits. Other rules were imposed on investors to tamp down rampant speculation, like margin requirements and the uptick rule on short selling.
That edifice worked well to ensure financial stability for decades. But in the past thirty years, the financial industry, like so many others, went through a process of deregulation. Bit by bit, many of the protections and standards put in place by the New Deal were methodically removed. And while the seminal moment came in 1999 with the repeal of Glass-Steagall, that formal rollback was primarily the confirmation of a lengthy process already underway.
Indeed, after 1999, the process only accelerated. Financial conglomerates that combined commercial and investment banking consolidated, becoming more leveraged and interconnected through ever more complex transactions and structures, all of which made our financial system more vulnerable to collapse. A shadow banking industry grew to larger proportions than even the banking industry itself, virtually unshackled by any regulation. By lifting basic restraints on financial markets and institutions, and more importantly, failing to put in place new rules as complex innovations arose and became widespread, this deregulatory philosophy unleashed the forces…
Tags: Banks, regulation, Senate, Senator Ted Kaufman, U.S. Government, Wall Street
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by Zero Hedge - March 11th, 2010 11:47 am
Courtesy of Tyler Durden
Originally authored by Hugh Hendry and appearing in the Daily Telegraph
You don’t know me; we’ve never met. But I fear you are being encouraged to dislike me. Let me explain: I’m a speculator. I manage a hedge fund. Apparently I profit from your misery. Accordingly, our political leaders are keen to see the back of me.
Only yesterday, Germany and France were calling for the "fastest possible" adoption of new rules to put an end to financial speculation. But before you write me off I ask that you listen to my side of the story.
First, and much like the bogeyman of folklore, the size and significance of the hedge-fund industry is vastly over-stated. The best estimate is that people like me control just 2.5 per cent of total global financial assets under management. The ability to move prices and markets resides more with the managers of pension funds, unit trusts and our banking contemporaries; fortunately, for them, they are on much better terms with our political masters.
Second, and much to my regret, I have to correct another misconception. I am not guaranteed success; far from it. I have no certainty or monopoly on making money; that’s the nature of risk taking, there is no free lunch. And believe me, I am subject to the harshest possible critic: the market.
Unlike my political adversaries I can’t spin this out. If I am wrong in my deliberations, I have to record a loss immediately. So it should come as no surprise that I give great consideration to what I do.
But what about this short-selling business and the allegation that hedge funds seek to profit from the misery of others; are we simply a scourge on society?
I believe not. Let me explain. In short selling, investors borrow shares and sell them, hoping that the price will fall and they can buy the shares later at a lower price, replace them and thereby turn a profit.
Hedge funds are not seeking to dictate economic affairs. Rather we are preoccupied by price. A market-based economy like ours requires a pricing mechanism to allocate resources and ensure that we all prosper. Get it wrong and we endure the calamity of the technology bubble and the sleazy debacle of the American mortgage crisis.
It’s not that hedge fund managers are bitter and seek to wreak havoc. It’s just that we believe that…
Tags: Hedge Funds, Hugh Hendry
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by Phil - March 11th, 2010 8:08 am
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That’s right, the new Forbes list is out where we celebrate the top .000014%!
Thanks to an unprecedented concentration of wealth, the World’s supply of Billionaires jumped 27% in 2009 and the 1,011 people in the club accumulated an AVERAGE of $500M more Dollars EACH! Isn’t that great? That’s $505Bn or 65% of America’s TARP spending handed over to 1,011 people who are, according to Forbes (The Capitalist’s Tool), clearly better than us.
They sure are doing better than us as America’s 450 Billionaires added $225Bn to their bank accounts (and that’s AFTER taxes) and the saddest thing is that amount is INCLUDED in the $1.6Tn bounce of US Total Net Worth we had after losing 18% of it in 2008. A lot of positive economic statistics are skewed by our top 1% but even the top 1% is blown away by the top 450 (0.00014%) who are sitting on $3.6Tn of our nation’s total household wealth 8% or 27M times more than the average citizen. Wow, I guess they are better than you - better in fact than 26,999,999 of you!
As I mentioned in "The Dooh Nibor Economy (that’s "Robin Hood" backwards)," America has become a real wealth-building machine the funnels every last cent off the bottom of the pyramid and sends it straight to the top. Those of us standing near enough to the top (the top 10%) are lucky enough to pick up enough table scraps to make us 1,000 times better than you - our bottom 90% "friends" and that is just great for walking around town but you must pity us because even we are embarrased to show up in our shoddy Armani suits when we are invited to hob-nob with the top 1% in their custom-tailored suits who don’t look at lables but at the thread-count of your sleeve.
Even those "masters of our universe" cower in the presense of that top .00014%, who are, by definition, 26,999 times better than they are! So don’t go thinking the people in the top 10% have it so easy - we have a whole different set of problems to deal with. You only need to make $150,000 a year to join the top 10% club - we have to make over $2M to crack the top 1% and $2M doesn’t even pay 1/10th of the MONTHLY interest on the assets on our top 450.
So congratulations to the Forbes winners, especially from the 462,000 of us that…
Tags: CHINA, Greece, inflation, unemployment, Wealth Gap
Posted in Immediately available to public, Uncategorized | 225 Comments »
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by Chart School - March 10th, 2010 11:28 pm
Courtesy of Fallond Stock Picks
Small Caps and Tech continued their good form. Technicals continue to support the move higher for Small Caps (Russell 2000) with new highs for the MACD and +DI line. The Russell 2000 would have to give up 25 points (or 4%) just to test breakout support at 650.
The prior underperformance of the semiconductors was undone with today’s 2% gain.
This revival helped keep the rally in the Nasdaq ticking over
But Large Caps didn’t quite live up to the gains of Tech and Small Caps
Last Friday’s breakout gap remains the most tempting pullback zone.
Tags: semi conductors, small caps, stock charts
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by ilene - March 10th, 2010 10:59 pm
Courtesy of Edward Harrison at Credit Writedowns
About a month ago I wrote a post called “The coming wave of second mortgage writedowns” the gist of which was that the big four banks (Citi, JP, BofA, and Wells) had a shed load of exposure to now worthless second mortgages. With many first mortgages now hopelessly underwater, it stands to reason that second mortgages on those same properties have zero value.
The big four are certainly well aware of this problem and are looking for ways to extend the wherewithal of underwater borrowers and pretend they don’t need to take losses on these loans. On paper, these companies are very well capitalized. However, in the real world, the likely losses they must eventually take on loans already on their books would probably render them insolvent. This is what I hinted yesterday in my post on the stress tests.
I said:
I would say the stress tests were a mock exercise to instil confidence in the capital markets. This was important first and foremost because it would induce private investors to pay for bank recapitalization instead of taxpayers. But it was also important for the economy as a whole as the sick banking sector was dragging the whole economy down. The key, however, is that the tests were a mock exercise. Despite the additional capital, banks are still hiding hundreds of billions of dollars in losses in level three, hold to maturity, and off balance sheet asset pools. If asset prices fall and/or the economy weakens, all of this subterfuge would be for nought.
-Geithner: jusqu’ici tout va bien
And when I use the phrase ‘mock exercise,’ by mock, I mean fake. Mike Konczal has done a remarkable job of putting these two concepts – the worthless second mortgages and the stress tests – together.
He writes in a recent post:
Let’s talk specifics: Last June I made a DIY Stress Test, using values reversed-engineered from the public documents, where you could play around with the values online or download an excel spreadsheet yourself (it’s still one of my favorite blogging items). The backbone of the overview of results, page 9 from the Federal Reserve’s document, looks like this:
I’m going to isolate the four largest banks Frank questioned about second-liens, along with their loses as they’ve legally sworn to being accurate during the stress test:
Again, this is data as reported to the government by the major banks during the stress test of 2009. So what’s going…
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by ilene - March 10th, 2010 10:49 pm
Courtesy of Edward Harrison at Credit Writedowns
When former Morgan Stanley chief Asian economist Andy Xie comments on the United States, he focuses on a bailout nation keen on perpetuating a bubble economy predicated on malinvestment and overconsumption. In this he sees parallels with Japan and its long malaise.
Japan has experienced two decades of economic stagnation since the collapse of the infamous bubble it suffered in the 1980s. The most popular explanations are that Tokyo wasn’t aggressive enough in stimulating the economy after the bubble burst, or that it withdrew its stimulus too early – or both. This line of thinking is popular among elite economists in the US, where it is rarely challenged. But few Japanese analysts buy it…
The argument to "stimulate until prosperity returns" is popular because it doesn’t hurt anyone in the short term. When a central bank prints money, its nasty consequence — inflation — takes time to show up. When a government spends borrowed money, repayment is in the future. Nobody feels the pain now. Indeed, when debt is sufficiently long-dated, nobody alive need feel the pain. So analysts who advocate stimulus are popular with politicians because it sounds like a free lunch. Japan’s tale is just a nice story that seems to support the argument…
Japan has run up the national debt equal to 200% of GDP — the greatest Keynesian stimulus program in history — all in the name of stimulating the economy back to health. It has failed miserably. Japan’s nominal GDP is about the same as when the stimulus began. Those who advocated the policy blame Japan’s failure on either the stimulus being too small or not being sustained for long enough – that is, the dosage, not the medicine itself, was at fault.
The bankruptcy of Japan Airlines is a sobering reminder of what is still wrong with Japan. It stayed with unprofitable routes for years without its creditors or shareholders being able to do anything about it. And by making credit cheap and easy, the stimulus prolonged the airline’s business model — actually, an anti-business model — for a long time. Zombie companies that have first claims to resources have trapped the Japanese economy in stagnation for decades. The lack of shareholder rights has given the moribund companies the luxury of being able to disregard capital efficiency. The government stimulus has prolonged this inept…
Tags: Andy Xie, debt, Economy, Fannie Mae, financial bubble, Freddie Mac, japan, MBS paper, Mortgage market, Recessions
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by ilene - March 10th, 2010 10:29 pm
Courtesy of Jake at Econompic Data
Some additional detail behind the improvement we’ve seen on the margin in the labor market year to date. The AP reports:
Job openings rose sharply earlier this year, a sign that employers might be preparing to step up hiring.
The number of openings in January rose about 7.6 percent, to 2.7 million, compared with December, the Labor Department said. And the job openings rate climbed to 2.1 percent, the highest in nearly a year. That rate measures available jobs as a percentage of total employment.
There are now about 5.5 unemployed people, on average, competing for each opening. That’s still far more than the 1.7 people who were competing for each opening when the recession began. But it’s down from just over 6 people per opening in December 2009.
The gradually brightening jobs picture corresponds to what many job search Web sites are reporting.
As can be seen below, while the number of openings has jumped, the level of hires has not necessarily improved (possibly partially explained by the wariness of those with jobs to make the plunge).
While not anywhere near normalized, the unemployed to job opening ratio has turned sharply.
This will be another important metric to watch in coming months.
Tags: Employment, job market, unemployment
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by ilene - March 10th, 2010 9:49 pm
Via e-mail to Yves Smith, posted at Naked Capitalism:
1. Before Barrack Obama’s next televised speech, prepare your “Bullshit Bingo” card by drawing a square. I find that 5″ x 5″ is a good size — and dividing it into columns –five across and five down. That will give you 25 1-inch blocks.
2. Write one of the following words/phrases in each block:
Restored our reputation
Strategic fit
Let me be clear
Make no mistake
Back from the brink
Signs of recovery
Out of the loop
Benchmark
Job creation
Fiscal restraint
Win-win
Affordable health care
Previous Administration
At the end of the day
Empower (or empowerment)
Touch base
Mindset
Bipartisan
Trust
Inherited as in “I inherited this mess”
Relief for working families
Unprecedented
Accountable (or held to account)
Free market
Reform
Players can make substitutions to this list, but only one phrase can be used in any one block. Alternatives include:
Change (as in “change you can believe in)
Universal health care
Brought the economy back from the brink
3. Check off the appropriate block when you hear one of those words/phrases.
4. When you get five blocks horizontally, vertically, or diagonally, stand up and shout ”BULLSHIT!”
Testimonials from past satisfied “Bullshit Bingo” players:
”I had been listening to the speech for only five minutes when I won.” - Jack W., Boston
”My attention span during speeches has improved dramatically.” – David D., Florida
”What a gas! Speeches will never be the same for me after my first win.” - Bill R., New York City
“The atmosphere was tense in the last speech as 14 of us waited for the fifth box.” – Ben G., Denver
“The speaker was stunned as eight of us screamed “BULLSHIT!” for the third time in two hours.” – Harry A. Chantilly
Tags: Bullshit Bingo, Health Care, Obama, Obama speech
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by ilene - March 10th, 2010 5:40 pm
What beautiful colors!
Courtesy of Joshua M Brown, The Reformed Broker
I plucked a bud off the cherry blossom tree in front of my house yesterday. Although the outside of it was gnarled and winter-brown, inside was the the soft, moist green of a honeydew melon. So much potential inside of that little brown bud - a setup for the imminent pink and white explosion that engulfs my tree every spring.
Talking to traders everyday, I continue to hear the term "Setup".
This is a noun that denotes a technical formation, usually the harbinger of a profitable trade. In a market with hundreds of stocks exhibiting bullish setups, it is hard not to think of the hundreds -thousands - of buds that will shortly burst with the colorful pageantry of renewal.
And technical analysts do not have exclusivity on the concept of setups. Many fundamental and quantitative setups are being crowed by the practitioners of the those sciences art forms. "How about the fact that $800 billion in cash still resides on the balance sheets of US corporations just waiting to be put to work?" asks one. "Or what about the fact that the dollar value of U.S. company takeovers is up 46% to $144 billion this year?" asks another. And what of the record number of biotech drugs in the pipeline and the new development of passive money managers embracing activism to improve stock returns?" inquires the chorus.
This can be taken away from us in a moment - in the time it takes for a black, threatening thundercloud to appear on the horizon - but for now, it is ours.
Technical Setups, Fundamental Setups, Quantitative Setups - all are apparent in this tape. But more importantly, there is a Qualitative Setup, one that may trump all the rest: The people I work with and trade with and invest with here in New York and across the country are smiling again. Smiling on the way to work and smiling on the way home.
Ear to ear.
Setup City is in full bloom.
"To whom it may concern: It is springtime. It is late afternoon." - Kurt Vonnegut
*****
Want to know WHY? Because I’m in a Better Mood, That’s Why.
…
Tags: setups, springtime, Stock Market
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by ilene - March 10th, 2010 5:35 pm
Courtesy of JESSE’S CAFÉ AMÉRICAIN
The propaganda campaign by the US government is trying to mask the fact that the economic recovery plan is failing and that America is rapidly losing confidence in Team Obama.
You cannot have a sustained recovery without changing the underlying conditions that caused the failure in the first place.
In addition to the media blitz dissected by Yves Smith in the essay excerpted below, I have never seen such a load of rubbish being put forward with regard to the markets in US financial assets and commodities, and I have seen quite a bit in the last twenty years. In particular, the campaigns against gold and silver in particular are heavy-handed, obvious, and reaching the point of hysteria.
The shorts are trapped, hopelessly trapped, and unable to deliver on their massive short positions. They are only able to manipulate the price in short term bursts, and continue to dig themselves deeper as the world demand continues to drain them.
Whoever heard of a bubble in which the major money center banks are so perilously short it? A bubble requires a broad participation and belief, and the encouragement of the market makers. And now a statement from an "SEC official" that there is a gold bubble. This, from the very people who allegedly could not see the tech, housing and credit bubbles until they fell on top of them.
And of course there are the funds and the wealthy, who mouth the same party line while lining their portfolios with huge positions and personal holdings.
Various exigencies can compel the big players to make statements swearing gold and silver are no good, no store of value against all the evidence of history. But the fact remains that the US dollar reserve currency regime is falling apart, tumbling like the humpty-dumpty construct that it is. And the status quo is shitting their collective pants about it, and the likely backlash from the public when their deceptions are exposed.
Don’t expect the Ancien Régime fiancier to fall easily, quietly, or quickly. But it will change; change is the only inevitability. And we all suspect what will remain standing when the dust settles. All this noise seems more like haggling over a larger quantity for a better price, and a clearer path to the exit.
Naked Capitalism
The Empire Continues to Strike Back: Team Obama Propaganda Campaign Reaches a Fever Pitch
By Yves Smith
I’ve seldom seen…
Tags: government statistics, Market manipulation, Propaganda
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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