Tuesday, June 5, 2012

QE3...the setup.

May 3rd, 2012

Fed unanimous in "no QE3...yet"

The expectation that moderate U.S. economic growth will continue to create jobs is feeding optimism among Federal Reserve policymakers that they won't need to resort to a controversial third round of bond buying to stimulate the recovery.

Stocks fall 10.5% as "growth" ironcially stops the very day (to the hour, actually) the FED says they're not printing money anytime soon.

June 1, 2012

Stocks in correction

The S&P 500 (SPX) index is down nearly 10% from its most recent high in April, which means the broad stock market is approaching what investors call a correction.

the Federal Reserve is widely expected to step in if ~~the stock market~~ economic conditions continue to deteriorate.

June 4th, 2012

Hedge funds lose money as commodity prices fall 26%

(I.E.Wall Street struggles as Main Street gets a price break at the grocery store and gas pump)
The European Central Bank rejected a plan to recapitalize Bankia group, Spain’s third-largest lender.

Europe has “thrown a wet blanket on speculators’ desire to hold risk” (I.E. "If you don't give us a risk-free one-way guaranteed market by printing money we'll take our ball and go home")

Investors pin hopes on central bankers

There is a sense of impending doom on Wall Street, and investors are hoping central bankers will brighten the mood with some stimulus next week.

"It's all about the Fed next week," said Keith Springer, president of Springer Financial Advisors in Sacramento Calif. "If the Fed comes through with a QE program, that could save the market -- if not the market will fall off a cliff."

The U.S. central bank has already bought trillions of dollars worth of Treasury debt under its quantitative easing strategy. It has also been using proceeds from assets in its portfolio to buy U.S. bonds in a program code named Operation Twist, which ends later this month.

"The economy is slowing down and stimulus is waning," Springer said. "The Fed needs to do a full-blown QE where they print money, but I don't think they will do that."

Bernanke rarely says anything explicit about stimulus, but investors will parse his every word for hints. The Fed's policy committee will meet on June 19 and 20.

Goldman Sachs increasingly confident of QE3 on June 20th 2:15 pm

"Our confidence that the FOMC will ease policy once more at the June 19-20 meeting has also grown. Our baseline remains that Fed officials will purchase a mixture of mortgages and long-term Treasuries, financed by balance sheet expansion".

Gold gains on speculation central banks will print money

(I.E. your paper currency is about to become less valuable)

“We could see some form of easing”

Note the close below the key 200-day moving average June 3rd, the day the before the Goldman Sachs announcement.

June 6, 2012
NEW YORK (Reuters) - Stock index futures rose on Wednesday on signs that European officials are urgently exploring ways to rescue Spain's debt-stricken banks and on hopes of further stimulus from central banks. "With the ECB meeting today, the BoE tomorrow and the Bernanke testimony on the economy on Thursday as well, markets again look to central bankers like dogs to pieces of meat. Will the dog get the meat and will it taste as good?" said Peter Boockvar, equity strategist at Miller Tabak + Co in New York

NEW YORK (Reuters) - Stocks jumped on Wednesday, giving the S&P 500 its best day since December, as talk of a rescue of Spain's troubled banks and hopes for more monetary stimulus sparked a rebound from recent selling.

June 7th, 2012
NEW YORK (CNNMoney) -- World markets surged over international optimism that governments are leaning toward stimulus to boost the economy.
Though this sentiment is largely speculative, given the lack of action this week from the European Central Bank.

June 8th, 2012
Stocks struggle, disappointed by Bernanke

NEW YORK (CNNMoney) -- U.S. stocks struggled at the open Friday on investor disappointment that Federal Reserve Chairman Ben Bernanke did not signal that more stimulus is on the horizon. (I.E. "If you don't give us a risk-free one-way guaranteed market by printing money we'll take our ball and go home")

June 12th, 2012
Fed’s Evans Says He Would Support Various Stimulus Plans
U.S. index futures rose on speculation policy makers will do more stimulate the economy.

Federal Reserve Bank of ChicagoPresident Charles Evans said he would support a variety of measures to generate a ~~higher stock market~~ faster job growth, underscoring his preference for more stimulus. “I’ve been in favor of pretty much any accommodative policy I’ve heard about,” Evans said. “Extending the Twist would be useful. More asset purchases would be useful. More mortgage-backed securities purchases would be good.”

June 14th, 2012
Dollar Falls After CPI on Fed Easing Speculation
(I.E. your paper currency is about to become less valuable)

“There’s nothing about the U.S. data that makes you want to own the dollar,” said Kit Juckes, head of foreign-exchange research at Societe Generale SA in London. “You’ve got an economy that’s growing slowly, an inflation rate that’s going to come lower, and a central bank with an itchy trigger finger to give us more quantitative easing.”

It's Do or Die for U.S. Stocks

Whether it is confirmation by Fed Chairman Ben Bernanke that he will print more money or the pending elections in Greece, the news should spark a technical breakout or breakdown, respectively. Therefore, we should watch 1337 above and 1306 for clues on where the market wants to go.

June 15th, 2012
Stocks: Central banks give markets a lift
NEW YORK (CNNMoney) -- U.S. stocks were poised to follow global markets higher as central banks in Europe signaled they would provide more cash

World’s Richest Gain $16 Billion as Global Markets Rise
The 40 richest people on the planet added a combined $15.7 billion to their collective net worth this week as markets rose on speculation that central banks will take steps to boost the global economy. Spanish retail tycoon Amancio Ortega, 76, became Europe’s richest man on June 13, after shares of Inditex, the world’s largest clothing retailer, surged 12 percent in a day. Ortega’s ascent came as Spain asked to borrow 100 billion euros ($126 billion) from European Union rescue funds last weekend to recapitalize its banking system. He is worth $40.1 billion.

June 19th, 2012
Despite Election, Helicopter Ben Will Arrive This Year
Bernanke's policy from day one has been to inject money into the system by any means necessary. Bazooka Ben pulling the trigger on more stimulus so close to an election would be controversial. Bernanke has "absolutely left the door to open to more easing" and she expects to see it by September, despite this being an election year.

Wall Street rallies on hopes for central bank move

The S&P 500 has gained more than 7 percent from a five -month low hit earlier in June, and is on track to close above its 50-day moving average for the first time in seven weeks. But the sharp gains also leave the market vulnerable if the outcome of Wednesday's Fed meeting doesn't meet market expectations.(I.E. "If you don't give us a risk-free one-way guaranteed market by printing money we'll take our ball and go home")

June 21st, 2012

Commodities Fall to Lowest Since 2010 as Fed Cuts Outlook

Commodities were poised to enter a bear market as U.S. reports on manufacturing, jobless claims and home sales signaled a faltering economy after the Federal Reserve ~~didn't devalue your dollars by printing more of them~~ refrained from announcing another round of stimulus.

June 22nd, 2012

"Pretty high hurdle" to QE3: Fed's Bullard

(Reuters) - Federal Reserve policymakers still see a "pretty high hurdle" before they would unleash a third round of quantitative easing, or QE3, a top Fed official said on Friday. "I do not believe that further monetary stimulus would make a substantial difference for economic growth and employment without increasing inflation by more than would be desirable," Lacker said in a statement.
The Fed has kept rates ultra low since late 2008 and has made a conditional pledge to keep them there through at least late 2014. It has bought more than $2 trillion in assets in two rounds of quantitative easing, QE1 and QE2, to battle the recession.

July 5th, 2012

Central Banks Deliver 45-Minute Salvo as Growth Weakens

In a 45-minute span, the European Central Bank and People’s Bank of China cut their benchmark borrowing costs, while the Bank of England raised the size of its asset-purchase program. They acted two weeks after the Federal Reserve expanded a program lengthening the maturity of bonds it holds and ChairmanBen S. Bernanke indicated more measures will be taken if needed.

Mon Jul 9, 2012 1:17pm EDT

(Reuters) - The U.S. Federal Reserve is prepared to do more to bring down unemployment that is far too high and to steer inflation back up to the central bank's 2 percent target, a top Fed official said on Monday. Williams set the table for further easing, saying the Fed was missing its goal of fostering maximum employment and was at the same time undershooting its inflation goal. "If further action is called for, the most effective tool would be additional purchases of longer-maturity securities, including agency mortgage-backed securities," Williams said.
"We stand ready to do what is necessary to attain our goals of maximum employment and price stability."

Your Federal Reserve "free market" in action.

Glossary

Bank Rescue: Stealing money from taxpayers to subsidize gambling losses by bank executives, so they can continue gambling.
Asset Purchases: Printing More Money
Balance Sheet Actions: Printing More Money
Balance Sheet Expansion: Printing More Money
Bond Buying: Printing More Money
Security Buying: Printing More Money
Easing: Printing More Money
Quantitative Easing: Printing More Money
Central Bank Stimulus: Printing More Money
Government Stimulus: Borrowing Money the Central Bank just printed
Central Bank "refusing to recapitalize": Not Printing More Money
Government "withholding stimulus": Not Borrowing Money the Central Bank just printed

Sources:

Wednesday, April 11, 2012

Why gas prices are high.

Gas prices are not high. The currency you use to pay for gas is losing value. This requires more of that currency to purchase the exact same product it purchased earlier before it lost value. Products like gas.

Click on any chart to make it bigger

When you hear "gas prices are rising" I hear "your dollar is falling!" Central banks keep printing money (they call it bond-buying or quantitative easing but it's printing) to manipulate the stock market higher / keep it from falling to maintain the illusion of a "recovery". The increase in the number of dollars decreases the value of existing dollars. It's as simple as that.

Imagine your Monopoly board as a kid, only your friend brings over the bank from his set too. Now you've got twice the Monopoly money to chase the same Monopoly real estate. Double how much monopoly money you start the game with as well. Every time someone lands on a property instead of buying it you have to give every one a chance to bid on it. You can watch the housing bubble in the comfort of your own board game! The board is exactly the same, but because you doubled the supply of money available to everyone to bid on it the price goes up. Now, imagine the banker of your game gets the bright idea to give all the players MORE money! Triple. Quadruple. Doesn't matter does it? The property has the same value as before you increased your bank...it's just your paper monopoly money is worth LESS because you added more of it. Money is simply a store of value, and is inherently worthless (it's paper!). Here's a couple charts from our Monopoly bankers, the Federal Reserve, to illustrate.

CONSUMER PRICES WITH NO ITEMS EXCLUDED

Dude...they're like...IDENTICAL!

MONEY SUPPLY

The 2007-2009 market decline, and every subsequent major market decline, was halted and reversed by central bank interventions. The policy of blatantly using money-printing or promises thereof to manipulate stock prices continues today. We all get stuck with the higher gas tab, but only a few get the benefit of higher stock prices. The "rising tide lifts all boats" theory never met Wall Street.

Print, and Ye Shall Rise!

this is called a "Direct Correlation"

Here are some recent headlines highlighting stock market action, central banker responses to that action, and the resulting impact on your money at the grocery store, gas pump and everywhere else.

(BLOOMBERG) APRIL 10 2012

DOW FALLS 213 POINTS IN 5TH STRAIGHT DOWN DAY. SP-500 CLOSES UNDER IT'S 50-DAY MOVING AVERAGE FOR THE FIRST TIME IN FOUR MONTHS.

(BLOOMBERG) APRIL 11 2012

Oil climbed from an eight-week low in New York as a European Central Bank official signaled the lender may act to stem the spread of the region’s debt crisis.
Futures rose as much as 0.7 percent and the euro gained against the dollar after ECB Executive Board member Benoit Coeure suggested that the bank may restart bond purchases for Spain. U.S. supplies increased by 6.58 million barrels last week, the American Petroleum Institute said yesterday. The Energy Department will report on stockpiles today.
“The dollar came under pressure and oil rose after an ECB official hinted that the bank may purchase Spanish bonds,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “I’m surprised we’re up at all after the pretty bearish numbers last night. If the government data confirms the supply build, we’ll probably head for new lows.”

Well, unfortunately for us Main-Streeters Gene, gasoline prices have a lot more to do with Central Bankers printing money than with supply and demand.

Gasoline demand down sharply since 2008

GAS PRICES MORE THAN DOUBLE SINCE 2009...JUST LIKE THE STOCK MARKET. WEIRD.

4/12/2012

(Reuters) - "The disappointing performance of the U.S. labor market in March shows it is too early to conclude the economy is out of the woods." An influential voting member of the U.S. central bank's monetary policy committee, Dudley appeared to leave the door open to additional stimulus measures.

Federal Reserve Vice Chairman Janet Yellen, 65, also said she’s not concerned that additional asset purchases would leave the Fed unable to control inflation when necessary. The Fed has bought $2.3 trillion of bonds in two rounds of large-scale asset purchases in a bid to reduce long-term borrowing costs and boost the recovery. “I feel fully confident that, regardless of the size of our balance sheet,” the “Fed has the tools, and has thought through carefully how to use the tools, to exit,” she said.

(Bloomberg) 4/12/2012

U.S. Stocks Post Biggest 2-Day Gain in ’12 on Fed Signals
Dow up 250 points since 4/10/2012

Commodity, financial and technology shares had the biggest gains in the S&P 500 . “We’ll continue to see similar language: the Fed is ready to provide more accommodation if necessary,” said Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc. His firm oversees $3.51 trillion as the world’s largest asset manager.“Yet I wouldn’t expect a definitive sign in April that there’s another round of quantitative easing coming. It’s just the idea that the Fed has that in their back pocket.” Equities rose after Federal Reserve Vice Chairman Janet Yellen and New York Fed President William C. Dudley endorsed the central bank’s view that borrowing costs are likely to stay low through 2014. U.S. central bankers next meet on April 24-25 to debate policy after ~~the stock market went down 5 days in a row and breached a key technical level~~ a report last week showed job growth slowed to the weakest pace in five months.

Yet another stock market decline has been temporarily halted by central bankers, dutifully hinting about "accomadation", "stimulus", "easing", and "bond-buying". At some point the market won't settle for hints and they'll actually have to print to stop the slide. They'll moronically declare that no matter how much Monopoly money they print, there won't be inflation. All good traders know it's time to pile into stocks and commodities when the printing presses are running. Commodities that include oil and food. If oil prices were based soley on supply and demand the 6.58 million barrel increase in supply last week should be driving down price. Unfortunately, you have to buy oil with paper currencies, which European and American central banks print have printed over 7 trillion of since 2008. Thus, supply is up, demand is down, yet oil prices are rising because every time stocks start to fall, Central Bankers charge to the rescue with promises to print more money. Wall Street gets a risk-free "can't lose" market, Main Street gets $4 gas and $300 trips to the grocery store. The real gasser is the way they publicly attribute their actions to "help unemployment".

I guess they are helping unemployment...on Wall Street. The stock market is up over 100% since 2008. Use those gains to fill up that gas tank and quit yer bitchin'. You do own stocks don't you?

http://www.bloomberg.com/news/2012-04-12/u-s-stock-index-futures-climb-as-fed-indicates-low-rates.html

http://money.cnn.com//2012/06/03/investing/stocks-lookahead/index.htm?section=money_markets&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_markets+%28Markets%29

http://www.bloomberg.com/news/2012-04-11/yellen-says-jobs-outlook-warrants-accommodative-policy.html
http://www.reuters.com/article/2012/04/12/us-usa-fed-dudley-idUSBRE83B0JN20120412?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28News+%2F+US+%2F+Business+News%29

http://www.bloomberg.com/news/2012-04-11/oil-rises-from-eight-week-low-as-ecb-signals-spanish-aid.html

Wednesday, April 4, 2012

QE: Main Street v. Wall Street

One of my favorite bloggers, Mark Hanna, posted this recently:
"Below we see the stock market action in blue shade during QE1, QE2 (please note the vertical line that designates when Bernanke gave the "all clear for QE2" signal at Jackson Hole, WY in August 2010), and Operation Twist. When those operations were not in full swing the market fell from 9-11%. That contrasts with double digit gains of anywhere from ~15 to 35% when the Fed is easing. Is it really that simple?" I posted a similar theory in June 2011 on my blog. Yes, Mark, it is that simple. Unfortunately Bernake printing money forces real goods like GAS, OIL, GOLD and FOOD (none of which count in headline inflation calculations by the way) to go up proportionally as well as the stock market he so cherishes. People that don't own stocks get higher costs for everything without the benefits. Wall Street happy, Main Street not so much. To illustrate, I've grabbed some date-sequenced headlines that are pretty self-explanatory, with all the links at the bottom of the post those who want 'em.

S&P 500 with QE areas shaded
All declines were halted by announcing more QE, not through any normal bottoming process.

Market Volatilty when QE ends

4/1/2012

"The era of quantitative easing-a process by which central banks buy assets such as government bonds to inject funds in the markets-may be coming to an end, according to a survey of fund managers."

4/3/2012

"Investors awaited minutes from the U.S. Federal Open Market Committee's March 13 meeting, due at 2 p.m. EDT (1800 GMT), that may provide clues on any potential quantitative easing. Federal Reserve policymakers on Monday signaled little appetite for further monetary steps to stimulate U.S. growth in an economy that is gradually strengthening."

NEW YORK (Reuters) - Major stock indexes extended losses on Tuesday after minutes from the latest Federal Reserve meeting showed policymakers appear less keen to launch a fresh round of monetary stimulus as the economy improves.

NEW YORK (CNNMoney) -- U.S. stocks sold off sharply Tuesday afternoon, after the Federal Reserve indicated it was unlikely it would offer more stimulus anytime soon.

4/4/12
Dow futures down 116 points

Oil dropped for a second day amid rising crude stockpiles and speculation the Federal Reserve may refrain from more monetary stimulus to boost the U.S. economy.

LONDON (Reuters) - Gold prices fell 1 percent on Wednesday after minutes from the U.S. Federal Reserve's March meeting suggested a fresh round of monetary stimulus was unlikely as the U.S. economy gradually improves, and as the dollar strengthened.
FRANKFURT (MarketWatch)—The U.S. dollar rose further against several major rivals Wednesday after Federal Reserve minutes showed more asset purchases were unlikely

European stocks, U.S. index futures and commodities fell after the Federal Reserve signaled it may refrain from more monetary stimulus and Spain sold less debt than targeted. (By tomorrow the headline will be Spain, not the Fed halting the printing presses, that caused markets to fall. We know better though...)

“The perception is that you’re taking away the safety net of excess liquidity that lifted asset prices,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne. (Umm..what was that? Excess liquidity from the FED lifted asset prices? The media said it was robust economic growth and a resurgent U.S. consumer. Who knew?) “Given the exceptionally good run we’ve had year-to-date, people are reassessing their risk-reward scenarios.” (Umm...what was that? Without the FED printing more money and manipulating the stock market higher Wall Street doesn't want to be in the stock market? Weird.)

(Reuters) - Wall Street stocks were looked likely to open lower open on Wednesday, despite good private sector payrolls data, as investors digested minutes from the latest Federal Reserve meeting published Tuesday suggesting further monetary stimulus action is unlikely. "My conclusion is the employment growth trend that we've seen over the last year remains in place and we probably will see a decent employment number on Friday when the Department of Labor reports non-farm payrolls," said Fred Dickson, chief market strategist, D.A. Davidson & Co. Lake Oswego, Oregon.
"It's kind of surprising there didn't appear to be any market reaction to it." (Acutally, Fred, it is not surprising at all.)

"Supportive policies by the U.S. central bank have been a primary catalyst for the S&P 500 stock index's surge of 30 percent since October" (and 123% rise since March 2009)"

4/9/2012

Hedge Funds Cut Commodity Bets on Fed’s Stimulus Signals

(Bloomberg) "Minutes from the March 13 Fed policy meeting released April 3 showed policy makers will probably hold off on increasing monetary accommodation unless the U.S. economic expansion falters. The Standard &Poor’s GSCI gauge of 24 commodities rose more than 80 percent from December 2008 to June 2011 as the central bank set rates at a record low and bought $2.3 trillion of debt in two rounds of quantitative easing."

Quantitative Easing = Money Printing. Creating Dollars out of thin air. However, these dollars don't go to you and me. They go to the banks, ostensibly to lend to us peasants to get the economy going. Banks like Goldman Sachs and JP Morgan who happen to have the largest TRADING DESKS in the world. Banks that make a lot more money in a completely rigged stock market (JP Morgan did not have ONE losing trading day the last quarter of 2010 or the first quarter of 2011) than lending to Mom and Pop.
Bottom line: add up the highlighted RED statements to understand what happens on MAIN STREET when the Fed engages in Quantitative Easing (an 80% rise in the cost of everything you have to buy to live like food and fuel. Thus, an inescapable tax that everyone, no matter how poor, must pay). Add up the GOLD statements to understand what happens on WALL STREET when the Fed engages in QE. (a 123% risk-free ride up in the Stock Market and all-time high bonuses for traders who can't lose) Understand that both events are the result of DEVALUING DOLLARS BY PRINTING THEM. You have 2.3 Trillion more PAPER dollar bills chasing the same commodities and stocks IN 2012 than you did in 2008. Speculators are simply responding to Fed policy. Speculators can't print 2.3 Trillion dollars, but they do understand that it's only paper and the cost of everything else must go up as a result.

Whose side of the street is our government and the FED on?

More jobs, lower gas prices, lower food prices and a stronger dollar via no QE would put them on Main Street's side. Fewer jobs, a weakened dollar, higher commodities and concentrated wealth into the hands of a few via a manipulated stock market puts them on Wall Street's side. Period.

http://marketmontage.com/2012/04/01/is-it-really-as-simple-as-dont-fight-the-fed/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+marketmontage%2Fxyz+%28Market+Montage%29

http://finance.yahoo.com/news/money-printing-era-may-ending-183752638.html?l=1

http://finance.yahoo.com/news/wall-street-starts-second-quarter-013101442.html?l=1

http://finance.yahoo.com/news/wall-street-starts-second-quarter-013101442.html?l=1

http://money.cnn.com/2012/04/03/markets/stocks/index.htm?section=money_markets&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_markets+%28Markets%29

http://www.bloomberg.com/news/2012-04-04/oil-falls-a-second-day-on-supply-as-fed-may-halt-stimulus.html

http://finance.yahoo.com/news/gold-edges-sell-off-fading-004301268.html?l=1

http://money.cnn.com//2012/04/04/markets/premarkets/index.htm?section=money_markets&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_markets+%28Markets%29

http://www.marketwatch.com/story/dollar-broadly-higher-but-slips-versus-yen-2012-04-04?siteid=rss&rss=1

http://www.bloomberg.com/news/2012-04-04/asian-stocks-australian-dollar-drop-on-fed-won-falls.html

http://www.reuters.com/article/2012/04/04/us-markets-stocks-idUSBRE83105P20120404?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28News+%2F+US+%2F+Business+News%29

http://www.bloomberg.com/news/2012-04-08/hedge-funds-cut-wagers-as-fed-signals-less-stimulus-commodities.html

Wednesday, March 7, 2012

Irony...Fed Style.

Sunday, March 4th, 2012

Jon Hilsenrath, Wall Street Journal:

The Federal Reserve is pausing after a six-month campaign to boost growth, while policy makers assess a puzzling economic outlook.
Fed officials meeting next week are unlikely to take any new actions to spur the recovery.

Monday, March 5th, 2012

Dallas Fed President Richard Fisher:

" I am personally perplexed by the continued preoccupation, bordering upon fetish, that Wall Street exhibits regarding the potential for further monetary accommodation—the so-called QE3, or third round of quantitative easing."
“markets should begin to preparing themselves for the good Dr. Fed to wean them from their dependency rather than administer further dosage.”

Forbes:

"It is rare to see a member of the rate-setting FOMC be so outspoken about the future of monetary policy. Fed Chairman Ben Bernanke has been very careful with his language as of late, neither denying nor confirming that the Fed is considering further easing. When, in Congressional testimony, Bernanke failed to indicate further easing, though, markets plummeted."

4 pm Tuesday, March 6th, 2012

Dow falls 203 points in the first selloff of more than 1% in 2012.

11 am Wednesday, March 7th, 2012

Jon Hilsenrath, Wall Street Journal:

Federal Reserve officials are considering a new type of bond-buying program designed to subdue worries about future inflation if they decide to take new steps to boost the economy in the months ahead.

Hey look! Chinese demand, U.S. job growth, worldwide unemployment, Greek bailouts, European debt, U.S debt and a partridge in a pear tree all improved at 11 AM. Weird!

Remember, kids, printing money does NOT make gas prices rise. It is NOT the Federal Reserve devaluing our dollar by printing 2.4 Trillion of them the last 3 years that causes gas to go up. It is Chinese demand. Or speculators. Or Iran. Or the One-armed man. It's pure coincidence that those things all start at 11 am, 4 milliseconds after the latest promise to print more money from Ben Bernake is leaked by the Wall Street Journal.

Food price increases are caused by Chinese demand. Not the Fed. Chinese demand just happens to start at 11 am. these days. They are in this whole other time zone.

I just don't know where us speculators get the notion that anytime stocks go down the Fed will print more money Mr. Fisher. It is indeed perplexing. As speculators, we also understand that you have NOTHING (wink wink) to do with with rising commodity costs (besides as long as you guarantee us a risk-free one-way market we can afford it). By the way, if you see your boss Ben Bernake in the hallway could you please tell him to respond a little quicker next time there's a down day in the stock market? Perhaps you could make it FED policy to have an automatic QE rumor anytime there's even a DOWNTICK in equities, instead of us speculators having to suffer a whole DOWN DAY and toss and turn all night thinking you might not be there for us the next morning. As you know, what's good for stocks is good for everyone. But really good for us speculators. Just a thought....

http://www.forbes.com/sites/afontevecchia/2012/03/05/dallas-fed-says-wall-street-hooked-on-monetary-morphine-dont-expect-qe3/

http://online.wsj.com/article/SB10001424052970204276304577261462731503918.html?mod=googlenews_wsj

http://www.marketwatch.com/story/fed-said-to-weigh-new-form-of-bond-buying-2012-03-07?siteid=rss&rss=1

http://www.bloomberg.com/news/2012-03-07/u-s-stock-index-futures-rise-before-payroll-report-apple-mako-advance.html

Monday, February 20, 2012

On Responsibility

In a speech delivered February 5th, 2012 President Obama announced a plan to help "responsible" homeowners. The speech has 14 paragraphs and mentions "responsiblity" 9 times, including the giant headline. I was already nauseous from the headline but had fight hard not to projectile vomit on the monitor when he said this: "There are more than 10 million homeowners across the country who, because of an unprecedented decline in home prices, owe more on their mortgage than their homes are worth. That's why I'm sending Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage by refinancing at today's low rates. No more red tape or runaround from the banks. A small fee on the largest financial institutions will ensure that it won't add to the deficit and will give those banks that were rescued by taxpayers a chance to repay a deficit of trust."

A one-time payment of $3,000 to a tiny fraction of 10 million underwater homeowners gets bailed-out banks square with the middle class? I think not. Mentioning "responsiblity" and "bailed-out banks" in the same paragraph earns Obama another cerificate to adorn his walls. Right next to the Nobel Peace Prize. Our President thinks the unprecedented decline in home prices is the issue, when in fact that is exactly what is needed to align home prices with incomes. The real issue is the unprecedented RISE in home prices that preceded this decline. A rise completely detached from average incomes in America. A price bubble in real estate funded by credit from the Too Big To Fail Banks (Bank of America, Wells Fargo, Citigroup, JP Morgan Chase, Goldman Sachs) and turbocharged by the the real estate finance industry (Countrywide Mortgage, etc.). A bubble that started in 1997 and burst in 2006, setting off the finacial panic of 2007-2008 and destroying the lives, incomes and savings of millions of regular Americans. While mainstreet America was being financially ruined by this, the banks and executives that created the bubble walked away with billions in pay and bonuses based on loan volume and artificially inflated prices. Banks that then got bailed out by the government instead of going bankrupt to pay for all those bad loans. Banks that are now illegally foreclosing on millions of overpriced homes, paying paltry fines while admitting no wrongdoing and ~~bribing~~ lobbying Congress to continue "business as usual". After all, keeping their "profits" private during the bubble years and sticking the rest of America with their losses when the bubble pops is working really, really really well for these assholes.

Allow me to illustrate.

Average Home Prices up 120% 1998-2006

Inflation-adjusted earnings 1970-present

You can see average incomes had NOTHING to do with home prices rising. The increase in home values was a speculative bubble created by the banks and the mortgage industry. It was a credit bubble, in which executives at all levels of the mortgage process reaped huge rewards for approving, processing and selling loans as quickly as possible. In fact, their incentive systems were specifically built to reward volume. The more, the merrier and be sure to cash the bonus check before the ink is dry on the loan paperwork. Exotic loans like Option ARM's had to be created to give people that literally didn't even have a job money to buy a house. That loan was then packaged and sold so quickly that the investor who bought it didn't realize not one payment had ever been made on the note, in many cases. The realtors, loan originators, processors and banks all got paid up front for their services however. The larger the loan, the more they got paid. The "responsibility" argument goes that no one placed gun to head and forced people to buy a house they couldn't afford. No they did not. Someone did , however, take out ads on the internet, in papers, on billboards, and even had reality shows ("FLIP THAT HOUSE!" on TLC) espousing the awesomeness of home ownership and how ANYONE can own a home. You'd better buy now because they'll be 20 grand more next week. Don't miss out! Bear Stearns, which had to be rescued by the Federal Reserve and JP Morgan Chase, was not only ignoring their own due diligence department during the bubble, they were threatening them for doing their jobs. An internal email from the head of Bear's mortgage backed security divsion read:
"I refuse to receive more emails from [Verchleiser] (or anyone else) questioning why we’re not funding loans every day. I’m holding each of you responsible for making sure we fund at least 500 each and every day… I was not happy when I saw the funding numbers and I knew NY would NOT BE HAPPY... I expect to see 500+ every day. I will do whatever is necessary to make sure you’re successful in meeting this objective."

The gun was not being held to Joe Sixpack's head to buy a house. The gun was being held to the heads of people who's jobs were to SELL loans to Joe Sixpack, income be damned, or lose YOUR job. "Responsible" people had nowhere to find affordable houses when ALL real estate in the bubble regions like Florida and California had more than doubled in five years. Precious few (besides the ones that caused the bubble) knew how illusory these price gains were. Budgets were made, businesses were built and homes were bought based on fraudulent and completely distorted real estate prices fueled by DEBT, not true growth or supply and demand. When the Ponzi scheme finally collapsed the same banks that created the crisis got bailed out. Goldman Sachs even made millions shorting (betting that values would fall) the same mortgage-backed securities they were selling as triple A to retirement funds near you. The American public got stuck with the bailout tab which is in the TRILLIONS and still running. Instead of writing off part of those fraudulently overpriced loans and refinancing at today's record low rates to allow jilted homebuyers a chance to remain in their homes and help everyone recover, the Bailed-Out Banks banks are foreclosing on millions of properties. 92% of the executives that ran these companies in the bubble years are still employed there. Some of the most egregious offenders are comfortably retired. Very Comfortably.

FYI Mr. President. Anthony Mozilo, former CEO of Countrywide Financial (In 2006 Countrywide financed 20% of all mortgages in the United States) is still working on his tan somewhere warm. In case you are unfamiliar with this Captain of Responsibility, let me introduce you.

The 2008 financial crisis is, in inflation-adjusted money, roughly 70 times worse than the Savings and Loan crisis of the late 80's. Per the NY Times however, "several years after the financial crisis, which was caused in large part by reckless lending and excessive risk taking by major financial institutions, no senior executives have been charged or imprisoned, and a collective government effort has not emerged. This stands in stark contrast to the failure of many savings and loan institutions in the late 1980s. In the wake of that debacle, special government task forces referred 1,100 cases to prosecutors, resulting in more than 800 bank officials going to jail."

Anthony Mozilo is the poster boy for Crony Capitalism (formerly known as white collar crime) in America, and his Wikipedia page reads like a blueprint for the greatest heist of our generation.

1. Outrageous Compensation ? Check.

Mozilo's total compensation from 2001-2006 (including salary, bonuses, options and restricted stock) approached $470 million. That is $214,612 per day, every day, for 6 years. Mozilo defended the pay: The compensation was a function of how the company did ahead of the mortgage crisis.

2. Crony "Backscratching" campaign with the all the right people to "Grease the Skids"? Check.

As the housing bubble inflated far beyond rational prices, even highly-paid public officials and corporate insiders were having trouble paying double what a home was worth just a couple of years ago. No problemo.

"Friends of Angelo (FOA)" VIP program

In June 2008 Conde Nast Portfolio reported that several influential lawmakers and politicians, including Senate Banking Committee Chairman Christopher Dodd, Senate Budget Committee Chairman Kent Conrad, and Fannie Mae former CEO Jim Johnson, received favorable mortgage financing from Countrywide by virtue of being "Friends of Angelo." The V.I.P.'s received better deals than those available to ordinary borrowers. Home-loan customers can reduce their interest rates by paying “points”—one point equals 1 percent of the loan’s value. For V.I.P.'s, Countrywide often waived at least half a point and eliminated fees amounting to hundreds of dollars for underwriting, processing and document preparation.Federal employees are prohibited from receiving gifts offered because of their official position, including loans on terms not generally available to the public. Senate rules prohibit members from knowingly receiving gifts worth $100 or more in a calendar year from private entities that, like Countrywide, employ a registered lobbyist.

Speaker of the House Nancy Pelosi's son, Paul Pelosi, Jr., Barbara Boxer, Adam H. Putnam, Richard C. Holbrooke, James E. Clyburn, and Donna Shalala are also among those with mortgages from Countrywide.

CBS News has obtained the following list of then-Fannie Mae employees whose names have been turned over to investigators as having received VIP loans from Countrywide: (Fannie Mae and Freddie Mac own or guarantee over half the $11.5 trillion in U.S. outstanding home loan debt and long used their lobbying muscle in Washington to thwart efforts to impose tighter regulation.) Please reference my previous post to see why that is extremely relevant.

Sandra Adams: Fannie Mae Account Associate
Nitirwork Armstrong: Fannie Mae Director

Gregg Ayres: Fannie Mae Customer Acct Manager

Jeffrey Baker: Fannie Mae Business Analyst

Ingrid Beckles: Freddie Mac VP Default Mgmt

Cherry Billings: Fannie Mae Asst to CEO

Christine Buckley: Fannie Mae Sr Assistant

Sharon Canavan: Fannie Mae Govt Relations/Lobbyist

Delynn Conley: Fannie Mae Underwriter

Carla Corpuz: Fannie Mae Senior Underwriter

Tanguy De Carbonnieres: Fannie Mae Legal Counsel

Bernard Deane: Fannie Mae Director

Mollie Dougherty: Fannie Mae Sr Business Manager
Roy Downey: Fannie Mae Director

Cynthia Fatica: Fannie Mae Legal Counsel

Jamie Gorelick: Fannie Mae Vice Chair

Lizbeth Grant: Fannie Mae Director Tec/Secondary Mkt

Greta Hamilton: Fannie Mae Manager/Home Loans

Lester Handy: Fannie Mae Consultant

James Johnson: Fannie Mae CEO 1991-98 earned roughly $100 million in pay over his time at the company.

Jack King: Fannie Mae Manager

Karen King: Fannie Mae Credit Risk manager

Gerald Langbauer: Freddie Mac VP Sales

Derek Lowe: Fannie Mae Technician/Home Loans
Mary Lee Moriarity: Fannie Mae Sr Underwriter Consult/Lending

Daniel Mudd: Fannie Mae Vice Chair and COO earned $12.2 million in base pay and bonuses while heading Fannie.

Paulette Porter: Fannie Mae Sr Proj Mgr/Mtg Securities

Alan Quirion: Freddie Mac Director

John Radwanski: Freddie Mac Sr Port Director

Franklin Raines: Fannie Mae Chairman and CEO earned more than $90 million from 1998 to 2003. Furthermore, the Office of Federal Housing Enterprise Oversight (OFHEO) revealed in 2006 that some Fannie senior executives (including Raines and Johnson) manipulated accounting to bolster their pay from 1998 to 2004.

Robin Ramsay: Fannie Mae Customer Acct Manager

Rebecca Rosena: Fannie Mae Credit Risk manager

Irwin Rosenstein: Fannie Mae Ass. General Counsel

Robert Sanborn: Fannie Mae Vice President
William Shirreffs: Fannie Mae Director

Joseph Silva: Fannie Mae Servicing Portfolio Manager

Donna Simpson: Fannie Mae Customer Acct Manager

Michelle Sorensen: Fannie Mae Sr Business An/Mortgage

Mary Ann Staley: Fannie Mae Marketing Dir

Deborah Kay: Tretler Fannie Mae VP Risk Management

Kirk Willison: Freddie Mac VP Trade Relations/Dir Industry Relations
David Yoon: Fannie Mae Acct Associate

3. Get out of Jail free card resulting from Crony campaign? Check.

SEC accusation regarding insider sales

Over many years, Mozilo sold hundreds of millions of dollars in stock personally, even while publicly touting the stock and using shareholder funds to buy back stock to support the share price. On June 4, 2009, the U.S. Securities and Exchange Commission charged former CEO Angelo Mozilo with insider trading and securities fraud.

Settlement with SEC

On Friday October 15, 2010, Mozilo reached a settlement with Securities and Exchange Commission. Mozilo agreed to pay $67.5 million in fines and accepted a lifetime ban from serving as an officer or director of any public company; it is the largest settlement by an individual or executive connected to the 2008 housing collapse. By settling the SEC charges, Mozilo will avoid a trial that could have provided fodder for future criminal charges. This fine represents a small fraction of Mozilo's estimated net worth of $600 million. Countrywide will pay $20 million of the $67.5 million penalty because of an indemnification agreement that was part of Mozillo's employment contract. The terms of the settlement allow Mr. Mozilo to avoid acknowledging any wrongdoing. In February 2011, the U.S. dropped its criminal investigation into the facts behind that civil settlement.

Thus, for a paltry fine of less than 8% of his stolen fortune, Mozilo eliminates any future lawsuits (while admitting no wrongdoing) and sails off into the sunset. The perfect crime. A Heist of over $600 million.

But wait, you say. He hasn't actually stolen anything. Sure Countrywide overpaid him and he might have been "overly enthusiastic" in his loan approval policies, but he's not a crook. I disagree. Mozilo and those like him have stolen FUTURE VALUE from millions of average Americans. He stated himself that his compensation was based on how Countrywide did in the boom years. Handing out loans to anyone with a pulse for years on end artificially and dramatically increased home prices. Those years frontloaded decades worth of potential home appreciation into a 7-year period between 1999-2006, and because the appreciation was based on credit, not on incomes, those home values will inevitably fall back to the 1999 level or below to align with actual income.

CORELOGIC®

REPORTS NEGATIVE EQUITY INCREASE IN Q4 2011

––Negative Equity Back to Q3 2009 Housing Market Trough Level––

SANTA ANA, Calif., March 1, 2012

––CoreLogic (NYSE: CLGX), a leading provider of information, analytics and business services, today released negative equity data showing that 11.1 million, or 22.8 percent, of all residential properties with a mortgage were in negative equity at the end of the fourth quarter of 2011. Nationally, the total mortgage debt outstanding on properties in negative equity increased from $2.7 trillion in the third quarter to $2.8 trillion in the fourth quarter.Negative equity, often referred to as “underwater” or “upside down,” means that borrowers owe more on their mortgages than their homes are worth. Nevada had the highest negative equity percentage with 61 percent of all of its mortgaged properties underwater, followed by Arizona (48 percent), Florida (44 percent), Michigan (35 percent) and Georgia (33 percent).

In a nutshell, you have $2.8 Trillion in underwater mortgages and counting left in the wake of The Great Credit/Housing Bubble Heist. Place the value of these homes back at their 1998 pre-bubble prices (where they have to be to align with incomes) and you would lose at least 50% of their "value". A $1.4 Trillion dollar difference. The banks have long sinced dumped all these bad loans onto the taxpayer by selling them to Fannie Mae and Freddie Mac. The executives that created and profited from this mess kept all the money they made, and 92% of them kept their jobs. In fact, we're already seeing hisorical revisionism where banks are now the "victims" of unscrupulous borrowers. Sorry, Warren Buffett, you are wrong on that. Not one bank executive has been prosecuted, or even charged with anything that they couldn't "settle". Settlements are just a cost of doing "business" in America these days. You can settle anything if the price is right. Just don't be the one caught holding the overpriced house, not getting a bailout, and being "irresponsible".

Freddie Mac bets against homeowners

Obama announces UNLIMITED LOSSES for Fannie and Freddie

How much did previous CEO's make?

Fannie and Freddie CEO's quit, pocket millions

Corelogic data

Obama plans to help "Responsible" homeowners

Zero Prosecutions
Angelo Mozilo

Roblog

We make money the old fashioned way...

Tuesday, June 5, 2012

QE3...the setup.

Wall Street rallies on hopes for central bank move

June 21st, 2012

Commodities Fall to Lowest Since 2010 as Fed Cuts Outlook

June 22nd, 2012

"Pretty high hurdle" to QE3: Fed's Bullard

July 5th, 2012

Central Banks Deliver 45-Minute Salvo as Growth Weakens

Glossary

Wednesday, April 11, 2012

Why gas prices are high.

Wednesday, April 4, 2012

QE: Main Street v. Wall Street

Wednesday, March 7, 2012

Irony...Fed Style.

Monday, February 20, 2012

On Responsibility

My Blog List

Blog Archive

About Me

Search This Blog

Roblog

We make money the old fashioned way...

Tuesday, June 5, 2012

QE3...the setup.

Wall Street rallies on hopes for central bank move

June 21st, 2012

Commodities Fall to Lowest Since 2010 as Fed Cuts Outlook

June 22nd, 2012

"Pretty high hurdle" to QE3: Fed's Bullard

July 5th, 2012

Central Banks Deliver 45-Minute Salvo as Growth Weakens

Glossary

Wednesday, April 11, 2012

Why gas prices are high.

Wednesday, April 4, 2012

QE: Main Street v. Wall Street

Wednesday, March 7, 2012

Irony...Fed Style.

Monday, February 20, 2012

On Responsibility

My Blog List

Blog Archive

Subscribe To

About Me

Search This Blog