The Fed's Fisher said:
WASHINGTON (MarketWatch) -- Richard Fisher, the president of the Dallas Federal Reserve Bank, said Thursday that he opposes expansion of the central bank's purchases of Treasurys beyond the planned $300 billion.
In a speech in Carlsbad, Calif., Fisher said he was against additional purchases because of the risk that the Fed would be seen as an agent of the Treasury Department and making it easy for them to sell their debt.
"We dare not come to be viewed as a handmaiden to the Treasury," Fisher said.
You've already accomplished being viewed as a handmaiden to Treasury. And Fannie. And Freddie.
So Mr. Fisher, when are you going to stop it?
Put your foot down?
Say "no mas"?
Fisher said the market should not doubt the Fed's resolve.
The Fed has lied up until now about everything related to this crisis, going back to when Greenspan was in charge and allegedly said there was "no bubble."
Uh huh.
The Fed has refused to force banks to eat their losses.
The Fed has refused to exercise its authority to reign in predatory and dangerous lending practices.
The Fed has granted 23A Exemptions like candy, including giving them to many banks that subsequently failed, thereby enhancing the damage taken by the FDIC and economy in general, instead of taking the action necessary to stop that BS and referring these institutions to the FDIC to be shut down.
The Fed has bought assets (specifically, Bear and Lehman "stuff" along with Fannie and Freddie debt) that is explicitly in violation of Section 14 of The Federal Reserve Act, demonstrating that it does not care what the rules are supposed to be - the rules are in fact whatever The Fed feels like them being on any given day.
The Fed has in fact done exactly the opposite of exercising its LAWFUL and PROPER authority to stomp on the bad actors, claiming that it "must" due to "systemic risk", but doing so simply means that everyone in the market believes you will do it again and again, because there is in fact never a time that you say "no'.
I believe you're lying again Mr. Fisher, and I will only believe otherwise when you prove it.
Oh My......
Let's see if I can count this up....
70 day CMBs, $30 billion (tomorrow)
13 week Bills, $32 billion (July 27th)
26 week Bills, $31 billion (July 27th)
52 week Bills, $27 billion (July 28th)
2 year Notes, $42 billion (July 28th)
5 year Notes, $39 billion (July 29th)
7 year Notes, $28 billion (July 30th)
19 year, 6 month TIPS (reopened), $6 billion (July 27th)
That's two hundred thirty-five billion dollars over the next week!
Almost one quarter of a trillion....... geejus.
I guess you should get while the getting is good, but this is going totally parabolic. That money has to come out of somewhere, by the way, in order for the sale to succeed, which is going to get rather interesting at some point - but exactly where it matters is impossible to know.
I expected that when we crossed the $100 billion threshold in a week the market would throw up all over it, but it didn't. Now we've got the government trying to sell a quarter of a trillion dollars in debt over the next week, the announcement is out there, and while the bond market is selling off to a material degree equities could care less!
This is flat-out insane. At this run rate we would be trying to sell twelve trillion dollars over one year's time, an obviously ridiculous and impossible-to-peddle amount of debt at any price.
When does the rest of the world wake up (not to mention the primary dealers) and say "NO!"? Never? Is there a truly insatiable demand for our government's debt, despite the fact that President Obama got up on the national stage last night and promised to spend another trillion dollars we don't have?
How do equities power higher into this sort of debt issuance? Is it simply that the market has deduced that the government will hand all of this zero-interest money out - indefinitely?
Guess what - that which is impossible won't happen, and the stock market is now telling you that the impossible will become reality. There has been and will not be any amount of fiscal sanity on the part of our government until the market imposes it, and when it does it is going to happen in exactly the same way it happened to Bear Stearns, Lehman, Fannie and Freddie. May I remind readers that it was said that Fannie and Freddie "couldn't" get in trouble due to their implicit government guarantee? Well guess what - they both effectively failed, but when the US Government finds itself in the same situation it has nobody who can take it into conservatorship and as such we're just going to have to deal with the consequences of failed debt auctions - that is, dramatically increased funding costs across the board in the economy, including the government, which will choke off any hope of economic anything.
Folks, this is how you get detonation of a nation's monetary and political system. Timing the "event" it is not easy, but the certainty of outcome given this sort of outrageously irresponsible activity is not in doubt.
I'm increasing my stock of things that "will never go to zero" and keeping my ear to the ground. The "short the phone book but make sure you get out fast before you get trampled" moment approaches - mark my words.
It's about time:
Now the FASB says it may expand the use of fair-market values on corporate income statements and balance sheets in ways it never has before. Even loans would have to be carried on the balance sheet at fair value, under a preliminary decision reached July 15. The board might decide whether to issue a formal proposal on the matter as soon as next month.
The impact of this would be tremendous. As Jonathan has noted, this would have "caught" CIT in December, six months before they got "in trouble" according to the market, as their loan book was in fact "worth" enough less to wipe out shareholder equity in December!
Here's the short and skinny:
The scope of the FASB’s initiative, which has received almost no attention in the press, is massive. All financial assets would have to be recorded at fair value on the balance sheet each quarter, under the board’s tentative plan.
This would mean an end to asset classifications such as held for investment, held to maturity and held for sale, along with their differing balance-sheet treatments. Most loans, for example, probably would be presented on the balance sheet at cost, with a line item below showing accumulated change in fair value, and then a net fair-value figure below that. For lenders, rule changes could mean faster recognition of loan losses, resulting in lower earnings and book values.
Financial truth? You can bet this will be fought, but if they go through with it and also force consolidation of all SIVs and other off-balance-sheet games (allegedly due to go into effect at the end of the year) we'll finally be able to read a balance sheet and come up with an accurate representation of the company's finances.
This is being entirely ignored by the market, but it is a literal bombshell for every financially-connected company in The United States. Forcing this disclosure (which should have always been policy and required) would expose the literal insolvency under fair-market value of hundreds of public companies right here and now, even with their stock prices flying to Mars.
We can only exit this recession and transition into durable economic growth when the debt in the system are recognized at their actual current economic value and cleared from the system, whether by sale at current value or bankruptcy of the holder.
Should FASB implement this it will bring the truth out of the accounting closet. That they're actually seriously considering this will set up an interest fight with lawmakers who literally threatened to legislate fraud as an accounting standard this spring. Indeed, here's the banking lobby's view:
“I guess the nicest thing I can say is it’s difficult to find the good in this,” Donna Fisher, the American Bankers Association’s tax and accounting director in Washington, told me.
That's absolutely right - telling the truth is absolutely verboten if you're in the banking industry, especially when the truth is that a huge percentage of your members - and perhaps all of your bigger ones - are, under actual market value rules, insolvent.
The "assault on bloggers" continues on the channel of stupidity, CNBC.
"I get these moronic bloggers writing about me ... especially this one idiot at Zero Intelligence," he says. As compared to Dennis Kneale's recent rants about the same blog, it was pretty tame. But then Gasparino's ace cohort, Michelle Caruso-Cabrera, stepped in and upped the ante. "'Moronic bloggers' is redundant," she chirped, apparently forgetting that a number of her former colleagues at the Times are currently employed as such or that Gasparino himself has been known to dabble in Internet name-calling, not to mention the oft-cited lesson, "Picking on kids smaller than you only to makes you look like a bully and/or insecure." Then she added for good measure: "He's probably not as handsome as you, either."
Shall we talk about the record, Charlie, Michelle and Dennis?
Your "Tout TV" channel has a stellar record. In 2007, when the blogging community (including The Market Ticker) was screaming about absolute scams in the banking sector such as WaMu paying dividends from uncollected capitalized interest, Tout TV (your new name around here) had Cramer telling people to buy Downey Savings and Loan (formerly NYSE:DSL) as "it was certain to be bought out." It instead went to zero, buried under the crushing weight of zero-down OptionARM loans written on property in California - a disaster that The Market Ticker and others correctly called more than a year before it destroyed several banks and dozens of lenders.
While I and others were eviscerating Angelo Mozilo and Countrywide Financial (formerly NYSE: CFC) for what was obvious (to me) financial cookery, insane inside stock sales and the impending collapse of the company Tout TV was holding court with him on your channel in "exclusive interviews" in which his gaudy suits overshadowed the claims that they'd "clean up" as the subprime market implosion would mean "less competition." Instead, Countrywide was essentially forcibly acquired after their business imploded. Again, Tout TV was wrong and the bloggers right.
While I and others were saying that Lehman was a zero, Tout TV gave Fuld a platform to spout that he was "well-capitalized" and was going to "burn the shorts." The only shorts that got burned were yours - along with your cheeks when they caught fire.
While Tout TV gave a platform to Paulson's "Bazooka" comment and trumpeted it, I and others correctly pointed out that The Fed was in fact responsible for these asset bubbles and that Fannie and Freddie would (at best) wind up in conservatorship. I in fact called both Fannie and Freddie as zeros months before it happened. Again, the bloggers were right and Tout TV was wrong.
When MBIA and Ambac were in trouble Tout TV came out daily to tell us that they were "about to be rescued", pumping the markets every time Charlie Gasbag-a-rino was said to be about to appear, and as such instead of the market deflating in a reasonably-controlled fashion when things came apart last fall the market crashed, destroying the investments of millions of Americans and giving them no chance to get out the door before the burning building collapsed on their heads. America can thank you, Tout TV, for your incessant pumping instead of (correctly) warning people to get the hell away from the stock market - a call I made in my 2007 Year In Review Ticker. I in fact called for the potential of a three-digit S&P 500 in December of 2007. Again, Tout TV got it 100% wrong and the bloggers had it right.
Tout TV has incessantly gone on about how "the market is telling you that the economy is turning around", the fact remains that during 2007, particularly in October, nobody on Tout TV has 'fessed up to the fact that the market's "predictive power" on future economic trends was in fact proved dead flat wrong. Indeed, just three months later the "roaring economy" predicted by the Stock Market was in fact declared in recession!
Tout TV has never apologized for getting it wrong, and in fact that's all Tout TV has done through this entire economic mess. You in fact laughed people like Peter Schiff off your program in 2006 and 2007, when he and others, such as myself, Mish Shedlock and Nouriel Roubini have been proved over time to be right, and Tout TV wrong.
The worst part of it is that this didn't start in 2007. Back in 2000 Cramer famously produced his list of "stocks you must own now" less than two months before the Nasdaq cracked; of that list he put forward most of them are today quite literally gone into the dustbin of bankruptcy, resulting in losses of 90% or more! For this "stellar record" Cramer was rewarded with a nightly TV show on Tout TV; the Americans who had their retirement ruined by listening to him got nothing. All through the crash of 2000-03 as I sat in municipal bonds and collected tax-free interest I saw Tout TV daily try to call a bottom that was not to come for two more years, with each rally being "the end" of the bear market. All through the Internet Bubble years we heard why companies that had no earnings (and no prospect of having them for years, if ever) were "strong buys" with never a question from Tout TV, and as the collapse deepened the stock that was a "strong buy" at $100 was "on sale at 20% off" at $80, a "screaming buy" at $50, "the buy of the century" at $20 and finally, it was time to sell at $2 - just before it was delisted.
With this last rally Tout TV has crooned about how "the recession is OVER", repeated nightly by Kneale and others. Never mind that as I noted on Kudlow's show last week this is clearly a consumer-credit-led recession and the facts are clear: consumers have not de-leveraged to any material degree as our government's policies have prevented it, and we have also not cleared the bad debt from lender (bank) balance sheets through bankruptcy, instead choosing to sweep it under various TARPs cast all about with wild abandon to the tune of several trillion dollars. The mathematical facts on consumer and corporate debt are what they are and are presented by The Federal Reserve on a regular basis - nobody in the media has any excuse whatsoever for failing to report these facts.
As I continue to point out you cannot fix a drunk's drinking problem with a bottle (or case!) of whiskey, yet Tout TV continues to proclaim that "restarting securitization" and "restarting lending" is the path to prosperity. Tout TV never acknowledges that the reason we're here is that too many loans were made to too many people who can't pay them back and these loans are still there! You cannot return the economy to a durable growth path until that which caused the recession has been removed, as Japan conclusively proved more than a decade ago when they tried to do the very same thing that our government and Fed is doing today!
Tout TV may be simply an excuse to display the closest thing to an orgasm that can be legally shown on television when your "talent" verbally spoos all over the floor of the NYSE on days when the market rallies, or it may be something simpler that drives the obvious "reporting" slant: Tout TV has a parent company that is up to its neck in financial cookery that could quite easily detonate and take the firm down, creating a perverse incentive to do nothing more complicated than save their own hides!
Tout TV has attracted the attention of bloggers like me precisely because we no longer have actual journalists when it comes to financial matters, and indeed, darn few left in any area of the so-called "mainstream media." The Bob Woodwards are symbols of a bygone era, replaced by pretty faces and bald-headed crooners with a sound board full of red buttons who have as much credibility and accuracy as the "set it and forget it" late-night infomercials or the spam for male enhancement products that ceaselessly flood email inboxes.
The hell Tout TV finds itself in is one of its own making, and one that it will only exit if and when it starts to display the sort of investigative bent that is in fact the very reason we have a First Amendment in The United States.
Until Tout TV figures it out and cuts the crap bloggers like myself and Zerohedge will perform the function that has been abdicated by those who are hopelessly compromised by the demands of corporate and government interests, having abdicated their responsibility to the American people and, unfortunately, to investors worldwide.
This morning we got a passel of earnings that I found quite interesting.
Let's start with McDonalds (MCD) since everyone loves the American Heart Attack symbol dotting the landscape (just kidding - kinda):
The Oak Brook, Ill.-based fast-food chain said net income fell to $1.09 billion, or 98 cents per share, from $1.19 billion, or $1.04 per share in last year's quarter.
Excluding a 10-cent-per-share gain a year ago from the sale of McDonald's minority interest in Pret A Manger, the company earned 94 cents per share in the 2008 quarter.
That's a bit of a miss. Same-store sales, however, were bright, rising 4.8% globally and 3.5% in the US. Revenue was down 7% but this was blamed on currency translation - I'll buy that explanation given the same-store sales numbers.
One thing I've commented on in the past is that McDonalds has over the last few years gone from "a cheap place to stuff your face right now" to a "moderately cheap place to stuff your face right now." More to the point I distinctly recall 99 cent quarter-pounders (another 20 cents for the cheese) and 99 cent Cokes, leading to a $2 meal (even if it did set you up for $250,000 bypass surgery 20 years later!) I confess to eating many of those $2 lunches.
Try that today; although the company has brought the "McDouble" back in most outlets at a buck its not a quarter pounder, and the drinks, well, consider that a fountain drink costs the company more for the cup than the soda in it. Nice margin.
Point being that people expected significantly-stronger same-store sales from the company's coffee push and the "trade down" effect but it looks like while their coffee bar concept is working the "trade down" may be going all the way down to Americans' kitchens, instead of stopping at McDonalds! Shares are under a bit of pressure this morning.
3M (MMM) was indicated significantly higher this morning after reporting earnings that were down 15.8% - a beat of expectations, however, at $1.12/share .vs. estimates of 94 cents. Revenues were off 15% though, although the company did raise estimates for full-year results based on stronger health-care and consumer electronics expectations. The latter looks more like seasonal demand and a shift toward "eco-friendly" products (3M makes components that go into LCD panels) and the former due to H1N1 (Swine Flu) - specifically, the firm's line of surgical masks that have flown off shelves worldwide. Expect the latter to get even more legs if the flu bites hard in Round #2 this fall and winter in the US (an outcome that I am expecting, sadly.)
AT&T (T) continued the trend with a report of 54 cents a share down from 63 last year, but again, three cents ahead of a bar placed on the ground and easily walked over. More troubling was the fact that AT&T added 1.4 million net subscribers, most of them contract (1.2 million) but revenue declined by 0.45 percent. In other words the subsidies for the iPhone and operating expenses are not being cut fast enough to keep up with what looks like a decline in ARPU. That's going to bite them in coming quarters if they don't do something about it, and "doing something about it" is likely to prove difficult. The street reaction was to pop the stock somewhat pre-market, but I'd be very cautious here - the big attraction in this stock appears to be the dividend which is a rich 6.7% at yesterday's closing price - if they can maintain it.
Finally, UPS (UPS). You can't like this; profit was down by nearly 50% on a yearly-comparison basis to 44 cents, adjusted reported as 49, a "meet" on expectations. But revenue was down to 10.83 billion from 13.0 billion a year earlier, continuing the trend of significant revenue declines. Their CEO said:
"Declines in both our domestic and international businesses appear to be stabilizing but volumes will remain significantly below last year's levels."
Yeah, not good; volume was down across the board both domestic and international. The stock got hit a bit - down about a buck and a half premarket.
UPS' report should make one wonder about Amazon, due out this evening. Nearly everything that they sell ships via UPS; the stock has been skyrocketing and eBAY's results last night (which I didn't think was all that great) ramped them even higher in the aftermarket. If Amazon surprises to the downside things get interesting fast, and those UPS numbers certainly should make one wonder..... we'll see what we get after the market today.
Also due out after the bell is Broadcom (BRCM); given Qualcomm's (QCOM) results (one of their competitors) and the market's reaction (pretty bad) this is also an earnings report I will be watching for. I consider Broadcom to be one of the best-run firms out there in the custom hybrid ASIC market - an essential component of high-tech communications devices (cellphones and similar), and they've also been on an absolute tear stock wise the last couple of weeks. Last night in my technical video (available to gold donors on the forum at http://tickerforum.org) I mentioned that I might be inclined to put on a bearish put spread or even short Broadcom outright today ahead of earnings - I'll be watching their price action closely today and if we get yet another Nasdaq ramp job I'm likely to enter that trade today going into the bell.
Disclosure: No direct positions in any of the mentioned companies; contemplating a bearish play on Broadcom today.
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