“We now have an economy in which five banks control over 50 percent of the entire banking industry, four or five corporations own most of the mainstream media, and the top one percent of families hold a greater share of the nation’s wealth than any time since 1930. This sort of concentration of wealth and power is a classic setup for the failure of a democratic republic and the stifling of organic economic growth.” - Jesse –http://jessescrossroadscafe.blogspot.com/
Source: Barry Ritholtz
“All of the old-timers knew that subprime mortgages were what we called neutron loans — they killed the people and left the houses.” - Louis S. Barnes, 58, a partner at Boulder West, a mortgage banking firm in Lafayette, Colo
Borrow-short lend-long strategies have caused more pain and grief than nearly any play in the book. They are virtually guaranteed to blow up given enough time if the duration mismatch and leverage is too great.
For those who do not know what I am describing, a couple examples below will help explain. The first example is a look at "cost of funds" and guaranteed profits that banks can make. It is not a borrow-short lend-long strategy but will morph into such a scheme as I vary the parameters.
Inquiring minds investigating Citigroup’s cost of funds note that Citigroup 5 year CDs yield a mere 1.5%. For this example, Citigroup’s cost of funds is 1.5%, the rate it pays depositors. Here are a few snips from Citi’s website.
Who said there are no guarantees in life?
Some things in life are a sure thing. Like a Citibank CD, which offers a guaranteed—and highly competitive—interest rate. You also get a wide range of terms, from 3 months to 5 years.
Citigroup has the gall to brag about "guarantees in life" when the "guarantee" in question is a complete ripoff. It’s a ripoff because 5-year US treasuries currently yield 2.35%.
Anyone buying CDs at less than the treasury yield rate is a fool.
Rates at Bank of America, Northern Trust, JPMorgan Chase
I will tie this together shortly, but first make note that the Northern Trust, Bank of America, and JPMorgan Chase offer even lower 5-Year CD rates.
Here are some rates courtesy of Bankrate.Com as of 2011-02-15.
According to Bankrate, national average for 5 year CDs is 1.61% and the rock bottom low is .95%. The site average is 1.98% and the top yielding 5-year CD yields 2.75%. Thus Citigroup’s claim of competitive rates is absurd.
Although Bank of America makes no such claims, its CD rate is priced so preposterously low, that Bank of America must not even want to deal with them. Alternatively, B of A has an incredibly large pool of moronic depositors begging to be ripped off.
Guaranteed Free Money
Anyone buying 5-year CDs from Citigroup, Bank of America, Northern Trust, or JPMorgan Chase is giving those banks a shot at guaranteed free money.
All those banks have to do is take that money and invest in 5-year US treasuries to have a guaranteed profit. Here are the reasons…
Let’s be clear here: A year ago, Assange said he had the hard drive of a Bank of America executive. More recently, he’s said that WikiLeaks is preparing to disclose evidence of an “ecosystem of corruption” at a big US bank. He expects the disclosures to cause resignations. There’s a widespread expectations that Bank of America is the target, even though Assange has been coy about that.
But one thing that’s highly unlikely is that Assange is making this up.
It’s possible everyone is wrong in connecting the dots here. Maybe the new megaleak has nothing to do with Bank of America. It’s also possible that Assange is over-confident in the importance of his information.
Bill Black, who will soon, together with Neil Barofsky, be a guaranteed shoe-in for the POTUS/VP position (both as independents, of course), was on the Ratigan show today, following on his op-ed from last week (here and here) calling for the long-overdue nationalization of Bank of America, and discussing the rampant fraud at the heart of mortgage gate. And contrary to ongoing lowball estimates from the like of JPM and Goldman, Black provides numbers about the bank liability that are simply stunning: "Credit Suisse says that by 2006 49% of all mortgage originations were liars loans. When independent folks study fraud, it is in the 80-90% fraud range. That means there were millions of acts of fraud. Those loan frauds occurred because the banks created incentive structure for the loan brokers to bring them the absolute worst of the worst loans, and to lie on the application forms… These frauds came from the banks, and they propagated through the system through a series of echo epidemics…This fraud spread through the system and that’s why we have a crisis in foreclosures. This stems from the underlying fraud by the lenders in mortgage loans to the tune of well over a million cases a year by 2005."
Furthermore, Black points out the glaringly obvious, that the Fed should not be in charge of any investigation into mortgage fraud, due to its "massive" conflict of interest, to the tune of $1.5 trillion in MBS/agencies held on the Fed’s books, which would be immediately null and voided if rampant MBS fraud is indeed uncovered. Which is precisely why the entitlement of the Fed as supreme regulator (as inspired by the financial generosity of the Wall Street lobby) as part of Frank-Dodd was the one single most destructive decision ever made, and equivalent in many ways with electing America’s very own tyrannical despot, whose only interest is making the multi billionaires, into trillionaires, and leaving everyone else in the cold through the eliminating of the savings class and the destruction of the reserve currency.
And it goes much further… to the very top of the US ruling oligarchy in fact. Which is why, as we have claimed from day one, nothing less than a complete reset of the entire kleptocratic system…
The current market rally is not based on a self-sustained typical economic recovery, but on blind faith that the Fed can pull out a magic wand and cure everything with another round of quantitative easing (QE2). As we pointed out last week, this a desperate attempt by the Fed to try non-conventional means to get the economy going again after a massive dose of conventional measures resulted in failure. The members of the FOMC know this, but with further fiscal measures off the table, they are aware that they are the only game in town. The Fed’s acknowledgement that the economy is in trouble is again highlighted by the latest Beige Book released yesterday. The following are some excerpts from the report:
“National economic activity continued to rise, albeit at a modest pace..consumer spending was steady to up slightly, but consumers remained price-sensitive, and purchases were mostly limited to necessities and non-discretionary items..Housing markets remained weak..Most reports suggested overall home sales were sluggish or declining..Home inventories were elevated or rising..Conditions in the commercial real estate market were subdued, and construction was expected to remain weak.Reports suggested that rental rates continued to decline for most commercial property types..industry contacts appeared to believe that the commercial real estate and construction sectors would remain weak for some time..Hiring remained limited, with many firms reluctant to add to permanent payrolls, given economic softness..Future capital spending plans appeared to be limited”
So there you have an outline of the anemic economic picture in the Fed’s own words. To be sure, they indicated some strong points as well. But the weakness in consumer spending, housing, capital expenditures, commercial real estate and employment pretty much accounts for some 85% of the overall economy.
In addition some of the major problems that worried the market earlier have not really gone away. The sovereign debt problems of the weaker EU nations have been papered over without being solved and are still lingering just beneath the surface. The looming currency wars that were shoved down the road by the recent G-20 meeting are also a major threat to the global economy.
Furthermore the Chinese housing bubble previously highlighted by bearish investor Jim Chanos and others has now appeared on the front page of the New York Times. A new district of the city of Ordos,…
Short Term Market Condition: Oversold (short term bullish)
Short Term Trend: Neutral
Just about everyone has heard about or read “The Black Swan: The Impact of the Highly Improbable” by Nassim Nicholas Taleb in which he describes how unexpected, highly improbable events can have massive impact.
I think that recent developments in U.S. financial markets could be a “black turkey,” larger, more destructive and uglier than any black swan ever could be.
In recent days, a “black swan” event, or even worse, a potential “black turkey” event has surfaced that is just beginning to impact financial markets and could have far reaching effects going forward.
I’m talking about “Foreclosuregate” or the “robo signing” scandal that has been rocking financial markets over the past several days and that this action could be just the beginning of a major unforeseen, black swan event.
Of course the details are still murky but the Attorneys General in all 50 states have launched an investigation to see if false documents and forged signatures were used in their foreclosure procedures.
All the big names could be involved, including Ally Financial, Bank of America and JP Morgan, among others, and the ramifications could be huge as this situation could throw the whole foreclosure process into question and uncertainty.
Today’s selloff appeared to be what could be the first salvo in a bloody war as PIMCO, Blackrock and the New York Federal Reserve went to Bank of America with a demand for $47 billion of mortgage repurchases. These entities are all huge players with similar interests and to have them square off against each other is certainly an unexpected event.
Bank of America will fight this, of course, but the “black turkey” here is that nobody knows how large the liability or how far reaching the claims might go if “robo signing” spreads.
JP Morgan estimates liabilities of as high as $120 Billion but if the $47 Billion at Bank of America is accurate, total industry liabilities could be much higher.
And here’s where the “black turkey” really could really get ugly. As we know, the market hates uncertainty…
The mortgage fraud cost estimates for banks are a bit like QB Ryan Leaf - all over the place and without any accuracy whatsoever.
We’re hearing estimates of anywhere from a few hundred million bucks to as much as $200 billion! And in the meantime, Bank of America ($BAC) is telling us that they’ve found nothing wrong in their foreclosure process and that after halting all activity in 50 states, they are now back in business in half the country.
There are currently 7 million foreclosures in the housing market that need to be worked through and any delay will be costly for large lenders like B of A.
Should the states or the courts decide that many of these securitized mortgage-backed bonds are structured fraudulently (no one knows which mortgage is owned by whom), there is a possibility that the banks may have to buy them back due to a clause on most of this paper called the Put-Back.
In the absence of anything even resembling a consensus on how big the costs of mortgage put-backs may be, the temptation is to simply say, Who Cares? Well, I’ll tell you who cares…
For starters, how about hedge fund manager John Paulson? With a stake in Bank of America of 167 million shares, Mr. Paulson has about 2 billion reasons to care about how big their put-back exposure is.
Mutual fund monster Bruce Berkowitz (Fairholme) has about 667 million reasons to give a damn (54 million shares held).
Hedgie David Tepper of Appaloosa Management, no slouch himself in the "reflation trade", has about 337 million reasons to care (27 million shares).
These three investors make up the Triumvirate of the Reflationista Trade. These are the ultimate Don’t-Fight-The-Fed-ers.
That they are all in the same trade, BAC, is not a surprise – it is the quintessential call option on housing and employment. But they may not have bargained for the foreclosure mess that has hit the media with the gale-force wind of 2007′s sub-prime storm. Whether or not this particular storm blows over – or spills over – is very much of interest to Paulson, Berkowitz and Tepper, make no mistake.
The news had a significant impact on the market because of the parties involved in suing Bank of America. The loans were originated by CountryWide, which had been acquired by BofA. It is ironic that Countrywide CEO Angelo Mozilo just settled with the SEC admitting no wrongdoing and merely paid a fine which was a small percentage of his financial gains.
It is nothing new for bondholders and the common people to sue some of the big Wall Street Banks for fraud.
But when the plaintiffs include some of the most important financial institutions in the country the market has to sit up and take notice.
It’s nice to see some outrage being expressed, even if it is among the privileged few. Watching Bloomberg television was particularly difficult today as the apologetics and cheerleading for the financial sector among its guests and newspeople is almost shameless.
Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said.
A group of bondholders wrote a letter to Bank of America and Bank of New York Mellon Corp., the debt’s trustee, citing alleged failures by Countrywide to service loans properly, their lawyer said yesterday in a statement that didn’t name the firms. The New York Fed acquired mortgage debt through its 2008 rescues of Bear Stearns Cos. and American International Group Inc.
Investors are stepping up efforts to recoup losses on mortgage bonds, which plummeted in value amid the worst slump in home prices since the 1930s. Last month, BNY Mellon declined to investigate mortgage files in response to a demand from the bondholder group, which has since expanded. Countrywide’s servicing failures, including insufficient record keeping, may open the door for investors to seek repurchases by bypassing the trustee, said Kathy Patrick, their lawyer at Gibbs & Bruns LLP.
ZeroHedge obtained an internal memo from Wells Fargo detailing the banks new procedures to handle what may be a flood of repurchase requests, as end investors use fraud allegations and sloppy paperwork to demand refunds on the mortgages they bought from the bank.
Here’s the gist:
Wells Fargo receives a deficiency notice or demand from the investor. Typically, Wells Fargo has 60 days to resolve the issue.
Wells Fargo notifies the Seller and provides supporting documentation when available. At this time, the Seller is given twenty-one calendar days to provide an explanation, facts or documentation to demonstrate that the mortgage loan complies with the requirements. If the Seller does not respond within 14 days of the initial notice, Wells Fargo will follow up with the Seller.
Wells Fargo will begin internal research (concurrently with Step 2) to resolve the loan issues. During this process, Wells Fargo will determine if there is a missing document and if the document can be located.
For all other issues, Wells Fargo will perform research to
Marion Post Wolcott Works Progress Administration worker’s children, South Charleston, WV 1938
In the end, what should have been avoided all along, was. The refugees who were treated like subhumans for days in Hungary, and who in the end refused to be subjected to that treatment any longer and started walking to the Austrian border, are being taken as we speak to that border, on buses provided by the government in Budapest.
Meanwhile, we have all been subjected to the words and ideas of Victor Orban, the loose cannon who rules Hungary. The media largely portray the sudden change from refugees stuck on trains in Budapest train station and locations just outside of the city, to the buses that will take them to Austria and presumab...
With Labor Day upon us, newspapers across the US will be printing op-eds calling for a mandated “living wage” and higher wages in general. In many cases, advocates for a living wage argue for outright mandates on wages; that is, a minimum wage set as an arbitrary level determined by policymakers to be at a level that makes housing, food, and health care “affordable.”
Behind this effort is a philosophical claim that employers are morally obligated to pay “a living wage” to employees, so they can afford necessi...
Students of economic history often marvel at some of the phenomena and oddities of past eras such as feudalism, giant stone currency, tulip bubbles and the gold standard. Perhaps in the future inflation will be added to the list of quaint, incomprehensible quirks banished to the history books.
That, at least, seems to be the conclusion of many investors and economists. Aside from a motley group of stubborn doomsayers — who have loudly and wrongly predicted the outbreak of hyperinflation since the financial crisis — the feeling in markets is that inflation is not just an inconsequential dange...
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The dark veil around China is creating a little too much uncertainty for investors, with the usual fear mongers piling on and sending the vast buy-the-dip crowd running for the sidelines until the smoke clears. Furthermore, Sabrient’s fundamentals-based SectorCast rankings have been flashing near-term defensive signals. The end result is a long overdue capitulation event that has left no market segment unscathed in its mass carnage. The historically long technical consolidation finally came to the point of having to break one way or the other, and it decided to break hard to the downside, actually testing the lows from last ...
With the VIX index jumping 120 percent on a weekly basis, the most in its history, and with the index measuring volatility or "fear" up near 47 percent on the day, one might think professional investors might be concerned. While the sell off did surprise some, certain hedge fund managers have started to dip their toes in the water to buy stocks they have on their accumulation list, while other algorithmic strategies are actually prospering in this volatile but generally consistently trending market.
Stock market sell off surprises some while others were prepared and are hedged prospering
Naysyers are warning that the recent plunge in Bitcoin prices - from almost $318 at its peak during the Greek crisis, to $221 yesterday - is due to growing power struggle over the future of the cryptocurrency that is dividing its lead developers. On Saturday, a rival version of the current software was released by two bitcoin big guns. As Reuters reports, Bitcoin XT would increase the block size to 8 megabytes enabling more transactions to be processed every second. Those who oppose Bitcoin XT say the bigger block size jeopardizes the vision of a decentralized payments system that bitcoin is built on with some believing ...
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Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).
Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself.
Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene
The replay is now available on BNN's website. For the three part series, click on the links below.
Part 1 is here (discussing the macro outlook for the markets)
Part 2 is here. (discussing our main trading strategies)
Part 3 is here. (reviewing our pick of th...
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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