All investment and trading decisions beyond an hour need a thesis.
Today's FOMC announcement ought to result in the realignment of yours:
Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn. Conditions in financial markets have improved further, and activity in the housing sector has increased.
We have monetized a scad of debt and that cash has wound up in equity markets. They have risen in response to the dynamic of supply and demand. Speaking of activity in the housing sector we're referring to the rocket-shot defaults on FHA mortgages.
Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales.
Neither business or consumer activity supports stock prices or provides us with any sort of indication that credit demand growth is going to return any time soon.
Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.
We believe in the Easter Bunny and Santa Claus too, as shown by the clear contradiction with our previous paragraph.
With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.
Prices are deflating, but we never use that word.
In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
We told you there was no credit demand and that neither consumer or business conditions warranted any sort of real optimism, but since you're hard-headed we'll say it again.
To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010. As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009.
The flood of monetization that powered the market from 666 to 1070 is ending. We're going to taper this program down, mostly because we're rapidly becoming the entire market, and that's bad news (never mind that we might wind up with ALL of the credit risk, especially in the MBS market, which is substantial! That would suck.)
The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.
We're sitting on a metric ton of used dog-food and are having trouble sleeping at night.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.
We all hold hands now as we head for the cliff.... Wheeeeeee!
The only important sentence in the entire announcement is in bold.
Ignore it at your peril.
Nice shelf to get short at; take it down if we break materially over 1080. Either economic fundamentals assert themselves as deserving of these valuations or we're a solid 2,000 DOW points (and 200 SPX points) or more above where we should be. As a trade the risk:reward looks better than it has in months; you're risking ~10-20 handles on the SPX to potentially capture 200!
READ THIS CONgress: THIS IS ONE OF THE GUYS WHO WAS DOING FORENSICS ON THE S&L CRISIS - AND WHO KEATING ALLEGEDLY THREATENED WITH DEATH FOR DOING SO!
From "Washington's Blog", reprinted in full:
William K. Black, Associate Professor of Economics and Law at the University of Missouri – Kansas City, and the former head S&L regulator, has written the following fantastic new proposal concerning the giant, insolvent banks. Posted/reprinted with Professor Black's permission.
William K. Black
Associate Professor of Economics and Law
University of Missouri – Kansas City
blackw@umkc.edu
September 10, 2009
The Obama administration is continuing the Bush administration policy of refusing to comply with the Prompt Corrective Action (PCA) law. Both administrations twisted a deeply flawed doctrine – “too big to fail” – into a policy enshrining crony capitalism. Historically, “too big to fail” was a misnomer – large, insolvent banks and S&Ls were placed in receivership and their “risk capital” (shareholders and subordinated debtholders) received nothing. That treatment is fair, minimizes the costs to the taxpayers, and minimizes “moral hazard.” “Too big to fail” meant only that they were not placed in liquidating receiverships (akin to a Chapter 7 “liquidating” bankruptcy). In this crisis, however, regulators have twisted the term into immunity. Massive insolvent banks are not placed in receivership, their senior managers are left in place, and the taxpayers secretly subsidize their risk capital. This policy is indefensible. It is also unlawful. It violates the Prompt Corrective Action law. If it is continued it will cause future crises and recurrent scandals. On October 16, 2006, Chairman Bernanke delivered a speech explaining why regulators must not allow banks with inadequate capital to remain open. http://federalreserve.gov/newsevents/speech/bernanke20061016a.htmCapital regulation is the cornerstone of bank regulators' efforts to maintain a safe and sound banking system, a critical element of overall financial stability. For example, supervisory policies regarding prompt corrective action are linked to a bank's leverage and risk-based capital ratios. Moreover, a strong capital base significantly reduces the moral hazard risks associated with the extension of the federal safety net.
The Treasury has fundamentally mischaracterized the nature of institutions it deems “too big to fail.” These institutions are not massive because greater size brings efficiency. They are massive because size brings market and political power. Their size makes them inefficient and dangerous.
Under the current regulatory system banks that are too big to fail pose a clear and present danger to the economy. They are not national assets. A bank that is too big to fail is too big to operate safely and too big to regulate. It poses a systemic risk. These banks are not “systemically important”, they are “systemically dangerous.” They are ticking time bombs – except that many of them have already exploded.
We need to comply with the Prompt Corrective Action law. Any institution that the administration deems “too big to fail” should be placed on a public list of “systemically dangerous institutions” (SDIs). SDIs should be subject to regulatory and tax incentives to shrink to a size where they are no longer too big to fail, manage, and regulate. No single financial entity should be permitted to become, or remain, so large that it poses a systemic risk.
SDIs should:
1. Not be permitted to acquire other firms
2. Not be permitted to grow
3. Be subject to a premium federal corporate income tax rate that increases with asset size
4. Be subject to comprehensive federal and state regulation, including:
a. Annual, full-scope examinations by their primary federal regulator
b. Annual examination by the systemic risk regulator
c. Annual tax audits by the IRS
d. An annual forensic (anti-fraud) audit by a firm chosen by their primary federal regulator
e. An annual audit by a firm chosen by their primary federal regulator
f. SEC review of every securities filing
5. A prohibition on any stock buy-backs
6. Limits on dividends
7. A requirement to follow “best practices” on executive compensation as specified by their primary federal regulator
8. A prohibition against growth and a requirement for phased shrinkage
9. A ban (which becomes effective in 18 months) on having an equity interest in any affiliate that is headquartered in or doing business in any tax haven (designated by the IRS) or engaging in any transaction with an entity located in any tax haven
10. A ban on lobbying any governmental entity
11. Consolidation of all affiliates, including SIVs, so that the SDI could not evade leverage or capital requirements
12. Leverage limits
13. Increased capital requirements
14. A ban on the purchase, sale, or guarantee of any new OTC financial derivative
15. A ban on all new speculative investments
16. A ban on so-called “dynamic hedging”
17. A requirement to file criminal referrals meeting the standards set by the FBI
18. A requirement to establish “hot lines” encouraging whistleblowing
19. The appointment of public interest directors on the BPSR’s board of directors
20. The appointment by the primary federal regulator of an ombudsman as a senior officer of the SDI with the mission to function like an Inspector General
TO CONGRESS: WAKE UP!
From the UN speech today (which, incidentally, got lots of press coverage while Geithner's dissembling in front of Congress got none):
Developing nations must root out the corruption that is an obstacle to progress – for opportunity cannot thrive where individuals are oppressed and business have to pay bribes. That's why we will support honest police and independent judges; civil society and a vibrant private sector.
How about developed nations? Let's run a short list right here:
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Our former Treasury Secretary who came to the SEC in 2004 to ask (for a second time) for leverage limits to be removed from investment banks - backed by literal millions in campaign donations and lobbying over the previous years - and got it. The consequence? Detonation of both Lehman and Bear Stearns, neither of which would have blown up but for the leverage that they were legally forbidden to take on prior to 2004.
-
A banking system that has Congress, The SEC, OTS and OCC so far in its pocket that despite over eighty examples of hard proof of falsely-inflated asset valuations and willful misfeasance by OTS and OCC in seizing insolvent banks before they result in FDIC loss the willful blindness continues to this day, causing the FDIC to teeter on the edge of running out of cash and begging the obvious question: Are all the large banks as far beyond insolvent as these regional and local banks have been proved to be once seized?
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A blatantly-corrupt OTS (banking regulatory body) that was caught conspiring with IndyMac to "backdate" deposits so as to falsely present a better financial picture than really existed at the time. The person at OTS involved had previously been caught doing the same thing during the S&L crisis BUT WAS NOT FIRED AND BARRED FROM FUTURE BANKING REGULATORY WORK! Nobody has been indicted in connection with this outrageous "in your face" fraud. Worse, the OIG's office said there were other examples - but refused to name them; are those institutions still operating?
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A Federal Reserve that has openly threatened Congress with the destruction of the economy and the dollar, under oath, in open Congressional Hearings, should Congress pass and enforce an audit of The Fed's activities, and yet The Fed continues to enjoy authorization to run monetary policy.
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Over a dozen "in your face" examples of clearly illegal insider trading over the last two and a half years, including August 2007, the "shorting ban", Bear Stearns collapse and more. All are trivially visible in price and volume action before the announcements were made. None have been investigated or resulted in indictments.
ALL OF THIS and much more (there are well north of 1,000 posts here documenting it all) has been undertaken for one singular purpose - to intentionally misrepresent to consumers, businesses and investors worldwide that the level of debt in the economy was supportable when in fact it was not.
This in turn allowed these financial entities to issue credit that they knew full well could never be paid back by the debtors, syndicate it, slice it, dice it, and sell it to suckers worldwide, extracting their fees from the process and guaranteeing that those who bought this garbage would suffer enormous losses.
Our government conspired with these people in allowing and enabling this fraud, and when it started to unravel government was then bribed (or was it blackmailed?) into attempting to offload all of the remaining undistributed trash to the US Taxpayer via transferring it to "sovereign credit" - that is, Federal Debt. This attempt is still ongoing, with Ben Bernanke buying hundreds of billions of dollars of likely-impaired (if not worthless) mortgage-backed paper from two companies that in fact went bankrupt (and were "taken into conservatorship") last year - Fannie and Freddie. But for the nearly $100 billion dollars that Taxpayers have forked over thus far to prevent their collapse this paper would have been discounted and sold into the market at its recovery value - a process that has been intentionally hidden from view by the actions of The Fed and Treasury.
President Obama, you're a hypocrite of the highest order and have absolutely no right to lecture any third-world banana republic while your administration practices every form of public and private corruption seen in such back waters of humanity - plus dozens they aren't sophisticated enough to figure out.
Yes, The Ticker is formally calling for a national bank boycott on Bank of America.
I'm serious.
And this has nothing to do with the fact that I believe they're hiding losses, that they're under investigation 7 ways from Sunday regarding the Merrill merger, or that BofA likes to bang you in the backside with usurious "overdraft fees", even though any of those standing alone is more than enough reason to run this bank into the ground.
Nope.
It is about this:
A South Carolina Bank of America branch is drawing criticism Thursday after an employee reportedly ordered the removal of American flags placed to honor a fallen Marine over fears that people would be offended.
The Palmetto Scoop received one eyewitness email claiming that the branch manager at Bank of America’s Gaffney branch at 1602 West Floyd Baker Blvd. “told a citizen who was preparing the route for a U.S. Marine killed in action in Afghanistan by placing small American flags along the roadway that the flags might upset some of her customers.”
Said the outraged tipster, “[The branch manager] took them down and made the citizen go in to get them if she didn’t want them thrown away.”
The flags were part of the funeral procession of Lance Corporal Christopher Fowlkes, 20, who died last week after an explosion in Afghanistan’s Helmand province.
Bank of America said:
“We want to ensure the community knows how deeply proud we are of the men and women who have sacrificed so much in service to our country,” the statement said. “The bank does fly the American Flag at our locations throughout the country and flags were displayed in front of our banking center in Gaffney the evening prior to our dedicated Marine returning home.”
A miscommunication in policy? And flags were permitted to fly in front of the location the evening prior - when the bank was closed and no customers would see them - but not when it was open?
Who would be "offended" by American Flags being flown on a funeral parade route route for an American soldier who was killed in action?
I am DEEPLY offended by this action taken by Bank of America, and their "corporate communication" on this makes clear that this was not a "simple misunderstanding." Bank of America has made clear that they "welcome" as customers ILLEGAL IMMIGRANTS, who are the only people who I can see being "offended" by the display of American Flags on a funerary parade route for a fallen American soldier!
If you are an AMERICAN, if you are in any way associated with our military or any of our fine fighting men and women in the military I call upon YOU to boycott this bank right here and now.
Withdraw your money.
All of it.
Move your business somewhere else.
All of it.
Kill these evil bastards the old-fashioned (and perfectly legal) way:
WITHDRAW YOUR FUNDS AND TAKE YOUR BUSINESS ELSEWHERE SO THEY HAVE A NICE EMPTY PARKING LOT ALL DAY LONG and an EMPTY vault to go with their REFUSAL to allow American flags to be displayed in tribute to FALLEN AMERICAN SOLDIERS.
Again: MOVE YOUR FUNDS AND BUSINESS TO A LOCAL CREDIT UNION. IF YOU DON'T HAVE ONE, PENTAGON FEDERAL CREDIT UNION (http://www.penfed.org) is HAPPY to have you as a customer and unlike Bank of America SUPPORTS OUR FIGHTING MEN AND WOMEN IN THE MILITARY.
Oh, and PenFed also won't bend you over the table with outrageous fees, including but not limited to playing games with overdrafts.
Paul Crudele asks: "What did Hank know and when did he know it?"
If Bernanke gave Paulson the slightest hint of what he was thinking, Paulson would have been in possession of very valuable information. If Paulson passed any of those thoughts on to people who could (and did) profit from it, then that would have been very illegal inside information.
I've written before that Paulson had lunch on Aug. 16, 2007, with Federal Reserve Chairman Ben Bernanke. The two men met from noon to 12:40 p.m. in the "small conference room," according to Paulson's records.
......
So Paulson's admission that he spoke with people on Wall Street regularly is fraught with inherent danger. That's especially a valid question after Paulson meets with the Fed chief, as he did on Aug. 16, 2007, when a crucial decision needed to be made.
The Fed indeed did surprise the markets by cutting interest rates by half a percentage point the next morning -- Aug. 17. And since it was the first of what turned out to be a long series of rate cuts, knowledge of what was about to occur did turn out to be extremely valuable.
No, really?
I have often raised hell about this little charade. It was blatantly obvious that "certain inside people" had knowledge of what was to come the next morning - Options Expiration morning.
A huge number of people who were (correctly, based on the economic fundamentals) short, myself included, got literally corn-holed that morning - to the benefit of those certain "favored few" who were clearly told in advance and traded in front of it.
This sort of "very illegal" inside information trading has been part and parcel of this entire mess. It is part and parcel of how we have a couple of firms, one in particular (cough-Goldman-cough!) who manage to make money on their "proprietary trading" virtually every day in a quarter, a statistically-improbable outcome akin to that of getting hit in the head by a meteorite when one goes to get their mail.
This, of course, is not the only example. We had a similar event occur when the SEC announced the ban on short-selling of certain financial names. Indeed, these "magical" reversals in the market (in both directions) have happened over the last two years more times than I can count.
The trading patterns make crystal clear that certain market participants knew in front of the announcement what was to come in each and every case. The bets placed were enormous and one-sided - that is, the bet was not "something is going to be announced" (which might be good or bad) but "XXX is going to happen and it will cause YYY" with sufficient specificity for those "favored sons" to pile in on one side of a trade to their benefit (and everyone else's loss.)
What is also crystal-clear is that nobody in the government gives a good damn about the laws that are broken by this insider-trading; these are not small, random people that were making illegal profits, it is some of the biggest and best-connected names on Wall Street.
It is trivially-simple to trace these trades - if anyone cares to do so - and bring charges.
Paul is to be commended for running this down, but the obvious questions that arise are "why now" and "what took you so damn long?"
All one has to do is watch the trading patterns. Government official call logs can be - and if we had any hint of an honest government would have been - subpoenaed, along with the trading records. Phone call + trading record = a nice long stint in the greybar motel.
But when the law only applies to "the little people" we indict Martha Stewart while some of the biggest firms on Wall Street do the same sort of thing literally every day - with impunity.
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