Clueless Janet Paves the Way for Bigger Crash
By punting again, our dithering money printers at the Fed are continuing to fuel a monumental orgy of corporate bond issuance. It only enables companies to speculate in their own stocks with borrowed money, while heaping windfall gains on the fast money traders who hound corporate boards into strip-mining their own balance sheets.
The level of high grade corporate debt outstanding has gone nearly parabolic in the last few years and now stands at more than 2X its pre-crisis peak. Yet even Yellen admitted during yesterday’s mindlessly meandering presser that business capital expenditure (CapEx) has been extraordinarily weak.
In fact, non-defense CapEx orders excluding aircraft peaked in mid-2104 and are now down by 10%. Even more to the point, real net fixed business investment after depreciation is still 20% below the level it each way back in early 2000. That is, two bubbles ago.
Perhaps the question about where all this hand-over-fist corporate borrowing is going might have occurred to at least one of the geniuses who voted to stand pat. But apparently it didn’t because once again Yellen insisted that “valuations are largely in line with their historical trends.” What in the world is our clueless school marm talking about? At the closing price yesterday, the S&P 500 traded at 25X the $87 per share reported for the last twelve month (LTM) period ending in June. And that was in the face of earnings that have plunged 19% since peaking in the September 2014 LTM period.
The Worst US Consumer Banks
The recent $185 million fine assessed on Wells Fargo & Co. (NYSE: WFC) and the subsequent congressional hearings have deservedly put the big bank squarely in the media spotlight. But when it comes to the amount of fines Wells Fargo has paid and the number of consumer complaints against the bank, it is only the fifth-worst in the United States.
According to a report at ValuePenguin.com, Bank of America Corp. (NYSE: BAC) is the worst U.S. bank out of the 50 included in a recent analysis. It ranked 44th in number of consumer complaints, 48th in regulatory penalties and 34th in responsiveness to consumer issues.
Other banks that ranked worse than Wells Fargo are Barclays PLC (NYSE: BCS), HSBC Holdings PLC (NYSE: HSBC) and EverBank Financial Corp. (NYSE: EVER). ValuePenguin used data collected by the Consumer Financial Protection Bureau (CFPB) to measure the number of complaints and a bank’s responsiveness to consumer issues. The best, in terms of number of complaints, were Raymond James Bank, Frost Bank, East West Bank and Rabobank, all with fewer than 100 complaints since the CFPB began collecting data in 2013.
The banks receiving the most complaints were Capital One Financial Inc. (NYSE: COF), with 17,177 complaints; Synchrony Financial (NYSE: SYF), 10,665 complaints; Barclays, 3,216; Discover, 5,365); and Santander, 4,524. The most penalized banks for acts like mortgage abuses, credit card violations, bad securities and creating thousands of unwanted accounts were Bank of America, which has paid nearly $57 billion in fines, HSBC (just over $4 billion) and Barclays ($3.37 billion).
Yahoo Admits 500 Million Hit In 2014 Breach -- Blames Foreign Spies
Yahoo has admitted to a hack in 2014 that left data of 500 million users exposed. The company also blamed an unnamed nation state for the hack.
Hints of an epic breach came in summer, when a dark web dealer called Peace offered 200 million usernames and passwords of Yahoo users on a Tor-based market called The Real Deal, as reported by Vice Motherboard. Rumours then emerged Yahoo was ready to admit the breach, but it’s now confirmed the hack was even bigger than first indicated.
“We have confirmed that a copy of certain user account information was stolen from the company’s network in late 2014 by what it believes is a state-sponsored actor. The account information may have included names, email addresses, telephone numbers, dates of birth, hashed passwords (the vast majority with bcrypt) and, in some cases, encrypted or unencrypted security questions and answers,” said Bob Lord, chief information security officer at Yahoo. It should be noted that bcrypt is a very strong hashing algorithm — such hashing uses maths to turn plain text into nonsense. The harder the algorithm is to crack, the harder it is to uncover the original password.
“Based on the ongoing investigation, Yahoo believes that information associated with at least 500 million user accounts was stolen and the investigation has found no evidence that the state-sponsored actor is currently in Yahoo’s network. Yahoo is working closely with law enforcement on this matter.”
Buffett: Bank Execs Didn't Pay High Enough Price for 2008 Crisis
Helicopter Money Is in the Air
Fiscal policy is edging back into fashion, after years, if not decades, in purdah. The reason is simple: the incomplete recovery from the global crash of 2008.
Europe is the worst off in this regard: its GDP has hardly grown in the last four years, and GDP per capita is still less than it was in 2007. Moreover, growth forecasts are gloomy. In July, the European Central Bank published a report suggesting that the negative output gap in the eurozone was 6%, four percentage points higher than previously thought. “A possible implication of this finding,” the ECB concluded, “is that policies aimed at stimulating aggregate demand (including fiscal and monetary policies) should play an even more important role in the economic policy mix.” Strong words from a central bank.
Fiscal policy has been effectively disabled since 2010, as the slump saddled governments with unprecedented postwar deficits and steeply rising debt-to-GDP ratios. Austerity became the only game in town.
This left monetary policy the only available stimulus tool. The Bank of England and the US Federal Reserve injected huge amounts of cash into their economies through “quantitative easing” (QE) – massive purchases of long-term government and corporate securities. In 2015, the ECB also started an asset-buying program, which ECB President Mario Draghi promised to continue “until we see a sustained adjustment in the path of inflation.” QE has not been a magic bullet.
Stockman Calls for 'House Cleaning' at the Federal Reserve
David Stockman, author of the book "Trumped" and former Office of Management and Budget director, said the Federal Reserve has taken over the financial system and a full house cleaning of its officials are in order.
In an interview on the FOX Business Network’s Wall Street Week, Stockman explained that after the Fed’s decision on Wednesday to keep short-term interest rates on hold, the central bank has lost all credibility.
“After 93 months essentially on the zero bound, [the decision[ was cowardly, clueless, and catastrophic,” he said. “The only thing this can do is inflate this hideous bubble we already have in the world financial system even more, and make the ultimate resolution or crash all the more traumatic.”
In order to resolve what he sees as problematic monetary policy, Stockman recommended a changing of the guards at the Fed. He said while he agrees there is slack in the labor market – a factor Fed Chief Janet Yellen said was behind the September policy decision – his reasoning for why it exists is different from the view held by the Fed.
Living In A Van Down By The River – Time To Face The True State Of The Middle Class In America
Do you remember the old Saturday Night Live sketches in which comedian Chris Farley portrayed a motivational speaker that lived in a van down by the river? Unfortunately, this is becoming a reality for way too many Americans. As the middle class has shrunk and the cost of living has increased, a lot of people have decided to quite literally “live on the road”. Whether it is a car, a truck, a van, a bus or an RV, an increasing number of Americans are using their vehicles as their homes. Just recently, someone that I know took a trip down the west coast of the United States and stayed at a number of campgrounds along the way. What she discovered was that a lot of people were actually living at these campgrounds. Of course there are some that actually prefer that lifestyle, but many others are doing it out of necessity.
Earlier this week, Circa.com posted a story about “the van life”. One of the individuals that they featured was a recent graduate of the University of Southern California named Stephen Hutchins. Without much of an income at the moment, he decided that the best way to cut expenses was to live in his van…
“The main expenses are insurance for the van, which is like $60 a month,” said Hutchins. “Then, I have a storage unit for like $60.” That puts his monthly rent at $120. The van cost him just $125 at an auction.
Living in a van is certainly not the most comfortable way to go, and many of you are probably wondering how he performs basic tasks such as cooking and bathing. Well, it turns out that he makes extensive use of public facilities… "He showers at the gym, cooks on a portable stove on a sidewalk (he stores his butane at his friends’ place nearby) and uses wifi at nearby coffeeshops."
ICE director faced tough questions about latest blunders
Obama Directs Federal Agencies to Consider Climate Change As a National Security Issue
In a Sept. 21 memo to his department heads, President Obama instructed all federal departments and agencies to consider the impact of climate change on national security.
Obama states that it is the policy of the U.S. government to ensure that current and anticipated impacts of climate change be "identified and considered" in developing national security doctrine, policies and plans.
"Climate change poses a significant and growing threat to national security, both at home and abroad," the memo says. Those threats, according to Obama, include flooding, drought, heat waves, intense precipitation, pest outbreaks, disease, and electricity problems, all of which can "affect economic prosperity, public health and safety, and international stability."
Obama also says those anticipated climate change issues could adversely affect military readiness; negatively affect military facilities and training; increase demands for federal support to civil defense authorities,; and increase the need to maintain international stability and provide humanitarian assistance needs.
Why the Bank of Japan may be praying for a Fed rate hike
The Bank of Japan has lost its grip on the country's currency, and an interest rate hike from the U.S. Federal Reserve may be the only fix for Japan's economy.
Overnight, the yen hit 100.07, its strongest against the dollar in nearly a month. The strength comes after the Bank of Japan took the new and unusual step of implementing so-called "yield curve control", a policy that's designed to keep the 10-year Japanese government bond yield near current levels, around 0 percent. Most bonds issued by Japan have negative yields — meaning that bond buyers actually pay for the right to lend money to the government.
"It's a sign again for me they're running out of policy options," said Lee Ferridge, head of macro strategy, North America, at State Street Global Markets.
The yen has persistently strengthened against the dollar all year, despite the Bank of Japan's move in January into negative rates. Loose U.S. monetary policy that has kept the dollar soft, and shocks such as the surprise U.K. vote to leave the European Union, have pushed the yen higher as well. The Japanese currency has climbed more than 15 percent against the greenback so far this year and made export giant Toyota cut its operating profit forecast by a stunning 1.12 trillion yen ($11.1 billion) for the current fiscal year.
Wells Fargo CEO John Stumpf Steps Down From Federal Reserve Advisory Council
Wells Fargo & Co. Chief Executive John Stumpf has stepped down from his role on a Federal Reserve advisory council, the San Francisco Fed announced Thursday.
Mr. Stumpf served as the San Francisco Fed’s representative to the council of bankers, which meets four times a year to discuss economic and banking matters with the Fed’s board of governors in Washington. “John made a personal decision to resign as the Twelfth District’s representative to the Federal Advisory Council,” Wells Fargo spokesman Mark Folk said. “His top priority is leading Wells Fargo.”
The embattled chief executive has been under pressure following revelations that thousands of employees created as many as two million of unwanted or fictitious customer accounts.
Lawmakers blasted Mr. Stumpf on Tuesday at a hearing on Capitol Hill over the scandal. In a letter to the San Francisco Fed Thursday, several Democratic senators including Elizabeth Warren of Massachusetts called on the bank’s board of directors to reject Mr. Stump’s reappointment to the Federal Advisory Council.
Haitian immigrants cross border through Mexico, claim asylum for quick processing and entry
Haitian immigrants are surging across America’s southwest border, blazing a path through Mexico to the U.S., where they have been coached to claim asylum, earning them quick processing and almost immediate entry into the country.
Analysts called it a backdoor amnesty that’s increasingly being abused by illegal immigrants who normally would have no shot of staying in the U.S., but who by claiming asylum can gain a foothold here. The Haitians are the latest to discover the route, likely encouraged by smugglers who stand to make thousands of dollars from each migrant they transport through Mexico and up to the U.S. land border.
A video obtained by Rep. Duncan Hunter, California Republican, which originated with U.S. Customs and Border Protection, shows Haitians massing outside of a Mexican detention facility on that country’s border with Guatemala, ahead of what analysts said was likely a long journey north to the U.S.
“It’s a method for backdoor entry that presents a real exposure, because its virtually open to anyone to enter the U.S. without any real scrutiny or undergoing the regular process,” said Joe Kasper, chief of staff to Mr. Hunter. “The fact that 300 Haitians show up in Mexico and from that point are virtually guaranteed entry into the U.S. underscores one of many major problems with the president’s immigration policy — and Americans need to recognize it.”
Why Fiat Money Manipulation Can Never Produce Prosperity
The study of economics is: the study of how people make a living. We make a living today with a fantastically complex network of specialization and trade – a network so complicated that nobody actually understands what is going on. This network is not organized by any sort of rational planning. Rather, it is organized by markets, prices, profit and loss – expressed in terms of money.
As described in eloquent detail by George Gilder in The Scandal of Money (2016), this system of money and prices is the information network that allows millions and even billions of people to cooperate together productively, and even, over time, with increasing productivity.
This information system is predicated on the idea that money is stable in value; that, for example, a rise in the nominal price of copper or Florida condos represents the supply-demand conditions of copper or condos, and thus contains information relevant to copper or condos, such as build more copper mines or build less condos. Profitability in condo construction channels capital toward more construction; losses result in a withdrawal of capital. As investment grows or shrinks, millions of employees are hired or fired, and relocate in this or that part of the country. The system has a natural tendency toward higher productivity, which, in practical terms, means lower prices.
People have always had an understanding of this, and have long made comparisons between money and unchanging measures such as meters, kilograms, or minutes. A “floating fiat” length of the meter, weight of the kilogram, or duration of the minute would introduce similar chaos in human cooperation. Consequently, people have always sought to make their “money” as stable in value as possible. In practice, for thousands of years, this has meant money based on gold and silver; and after 1870, gold alone. The system worked beautifully, for centuries. The final decades of the worldwide gold standard, the 1950s and 1960s, were the most prosperous decades of the past hundred years.
Fed Admits It Has No Clue
The Federal Funds Rate was a surprise only to the intractable 12% of myopic analysts who want the Fed to get out of the business of printing dollars regardless of economic risk. The most interesting comment by Fed Chair Janet Yellen was her admission that she and her prestigious voting members don’t have a clue why inflation and capital investment spending have not returned to loftier levels.
Yellen: “Investment spending really has been quite weak for some time and we are really not certain exactly what is causing that. … the weakness in investment spending extends beyond that sector (declining oil drilling activity) and I’m not certain of exactly what explains that …”
Wow! Really? One may ask how theses elite economists can expect a significant 250 basis point credit tightening over the next couple of years in an economy muddling along just above “stall” speed with no clue why inflation and capital expenditures have failed to rise as expected from their massive monetary stimulus.
One explanation is: In a western world of aging consumers creating a long term environment of excess capacity we also have a global energy bubble that exploded. It was a tech bubble peak in 2000, a mortgage bubble top in 2007 and, ironically, an oil bubble in 2014 that burst. Ironic in that the pinnacle of each mania was approximately 7 years apart with ensuing liquidations halted in less than 2 years. The Fed myopia sees a low Fed Funds interest rate at zero which has failed to stimulate rising inflation and capital investment. They assumed cheap credit would gift a massive tax cut proxy upon businesses and consumers encouraging faster economic growth rates, expanding factories and surging inventories.
Bill Fleckenstein to trader: Stop being a jerk - CNBC Rant
You can now register to vote by sending a text
A new chatbot based service is making it easier for anyone to vote. HelloVote launched on Thursday to help people register in about a minute by sending a few texts. In the last presidential election, about 33 million people -- more than 15% of citizens eligible to vote -- were reported as not registered, according to data from the U.S. Census Bureau. Another 28 million, or 13% of eligible voters, did not respond, weren't asked or refused to comment on their registration status.
Reasons given for not registering to vote include a confusing registration process, missing deadlines or technical barriers. HelloVote's goal is to get many as many Americans into the polls on Tuesday, November 8 for the upcoming presidential election. The service works via SMS, so you only need a cellphone -- which 92% of US adults own.
To test the service -- and yes, I hadn't yet registered in New York -- I gave it a try by texting HelloVote at 384-387. The platform asks for basic information, such as first and last name, address, date of birth and driver's license or the last four digits of your social security number.
New York requires a printed and signed copy of the voter registration form. I'll soon receive a copy in the mail and need to send it back to the NYS Board of Elections (this varies by state). There's also an option to print out an emailed version. HelloVote covers the cost of postage. "[Although] companies use a lot of the forward-thinking technologies, we haven't seen that trickle down to some of the very basic aspects of our civic lives," HelloVote cofounder Elana Berkowitz told CNNMoney.
Japan’s Time Is Running Out: Toward Monetary Exhaustion
Recently, Japan’s second quarter GDP growth was revised up to 0.7 percent, after four consecutive quarters of stagnation. But don’t set your hopes too high. More than three years ago, the conservative caution of the Bank of Japan (BOJ) Governor Masaaki Shirakawa faded into history as his successor Haruhiko Kuroda pledged to do “whatever it takes” to achieve the 2 percent inflation target. Yet, today inflation remains close to zero and Japan’s stock market is down 13 percent.
Irrespective of the outcome of its recent meeting, the BOJ can only postpone the inevitable. Nevertheless, cyclical fluctuations in Japan or elsewhere will in no way mitigate secular challenges.
Under Kuroda, the BOJ has boosted quantitative and qualitative easing with negative interest rate policy. Base money and the central bank’s holdings of Japanese government bonds (JGBs) each have swollen to almost ?400 trillion ($3.9 trillion), which is now 80 percent of the country’s GDP, and they continue to expand at a pace of?80 trillion ($780 billion) annually.
What Kuroda is doing would be comparable to Fed chief Janet Yellen boosting base money and the Fed’s treasuries up to $14.9 trillion, while easing at $3 trillion per year, with no specific limit in sight. In Washington, that would mean an economic kamikaze and political suicide. Until recently, Japan was a different story. Now divisions are spreading in the BOJ. Kuroda’s fractured majority is sticking with the original plan of large-scale JGBS and negative rates to boost growth and inflation. However, some advocate greater flexibility – ?70 trillion to ?90 trillion per year – in purchases, hoping that would make a difference. In contrast, skeptics would like to curb the BOJ’s purchases, even at the risk of perceptions of tightening, rising yen and plunging markets.
Greenspan Says He Would Like to See Dodd-Frank Bank Law Repealed
Former Federal Reserve Chairman Alan Greenspan said sweeping post-crisis reforms of the U.S. financial system haven’t fixed the problem they were designed to tackle and should be scrapped, escalating his long-standing criticism of the 2010 Dodd-Frank Act.
“I don’t think this bill is working at all and I would like to see it repealed,” he told Bloomberg Television’s David Westin in an interview Thursday from Washington. “But I must admit that the politics are such that that is called wishful thinking.”
U.S. Treasury Secretary Jacob J. Lew, in separate remarks on Thursday, said Dodd-Frank had made the financial industry safer. “It would be a mistake to roll back the clock on these protections,” he said in testimony to Congress.
Greenspan’s hands-off approach while he helmed the U.S. central bank was blamed by many critics for fostering conditions that incubated the global financial crisis. While Greenspan said in 2008 that his free-market ideology shunning regulation was flawed, he has for years been skeptical of Dodd-Frank, enacted after the turmoil to make banks stronger and subject to better oversight.
Yahoo! hit with massive hack, corporate taxes cut worldwide
Lockheed Martin Plans to Buy Back $2Bln of Own Stock
The Lockheed Martin Corporation board of directors has authorized the purchase of up to an additional $2.0 billion of its own common stock under its share repurchase program, the company said in a press release on Thursday.
"With this increase, the total remaining authorization for future repurchases under the share repurchase program is approximately $4.3 billion," Lockheed Martin stated.
The number of shares purchased and the timing of purchases are at the discretion of management and subject to compliance with applicable law and regulation.
Also on Thursday, analysts at Zacks Investment Research downgraded shares of Lockheed Martin Corporation from Hold to Sell in a research note to investors, the Ledgers Gazette reported.
The Elite Solution: Three New Ways To Get Inflation
There are three ways to get inflation that have not been tried yet. You can see them coming a mile away if you understand elite jargon and the elite message system.. The three new ways to get inflation are “helicopter money,” special drawing rights and raising the price of gold.
Helicopter money results when governments run larger deficits and central banks print the money to cover the deficits. Central banks have been printing money since 2008. The problem is banks won’t lend it and people won’t spend it. Helicopter money cuts out the middleman. Governments just borrow and spend the money directly without waiting for the banking system to do the job. Central banks pick up the tab.
Special drawing rights (SDRs) are just world money printed by the IMF. The one advantage of SDRs is that very few people understand them, and there’s no political accountability. SDRs can work hand in hand with helicopter money.
If governments want to spend more but legislatures won’t let them, the IMF can hand out SDRs, and governments can spend those without waiting for their own legislatures to act. The IMF acts like the “central bank of the world,” and no one can stop them. Raising the price of gold is the easiest way to get inflation. A higher dollar price for gold is practically the definition of inflation. Governments can do this in a heartbeat. The Fed would just declare the price of gold to be, say, $5,000 an ounce and make the price stick using the gold in Fort Knox and their printing press to maintain a two-way market. The Fed could sell gold when it hits $5,050 an ounce and buy gold when it hits $4,950 an ounce. That’s a 1% band around the target price of $5,000 an ounce. The band and the use of physical gold will make the target price stick.