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Wall Street Is #Winning In Full-Blown Charlie Sheen Fashion

We interrupt this financial blog for an important political message:

First of all, let me say I haven’t read the actual bill but I’m sure none of the folks in the house who voted for it haven’t either. What I do know is that Wall Street’s too-big-to-fail banks have basically held the federal government hostage by inserting their own provision into the latest spending bill that allows the government to avoid shut down.

The banks are essentially saying, ‘let us keep trading what Warren Buffett calls “financial weapons of mass destruction” with an explicit bailout backstop from the FDIC or else… [the government will cease to operate].’ To be clear, this is one way banks are allowed to play the heads I win (and keep all the trading profits), tails you lose game (and American taxpayers pick up the tab) in the markets.

What I find especially disgusting about this is that Citigroup lobbyists, not congress, wrote the entire provision that has been inserted into the spending bill. Then Jamie Dimon, CEO of JP Morgan, made personal calls to key players in the house to ensure the bill would pass.  What’s more, another provision in the bill allows for congresspersons to receive 10X as much money from lobbyists, like those from Citi who wrote the provision, in the future as they do already today.

Now I know this isn’t about ‘did we learn nothing from the financial crisis’? We certainly did learn something and the Dodd Frank reforms, with critical insight and input from Paul Volcker, went a long way toward rectifying the problems. No – this is more about the banks paying people off to put their interests above those of the American people.

And I, for one, am utterly ashamed of our political process at a time like this.

Full Disclosure: I have not been registered Republican or Democrat for over a decade because, in the words of Richard Jeni, it’s just too much fun to, “bitch no matter who wins.” 

Now back to your regularly scheduled market insights.

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Economy, Investing, Markets

Why Ben Bernanke & Co Fear The Taper And Mr. Market Should Too

bernanke money printing

They’re printing money because they’re scared of what might happen if they don’t. -Albert Edwards

As you are probably already well aware, the Fed decided not to taper it’s $85 billion per month of bond purchases just yet. This threw most market watchers for a loop as Ben Bernanke had made it pretty clear leading up to the announcement that the Fed had every intention of beginning the process of removing this latest round of quantitative easing.

What I find interesting is that, as Stan Druckenmiller suggests, the Fed had primed the market for this tapering in bond purchases and essentially had a freebie to get it started yet they decided not to use it. Why?

Clearly, if the economy is not recovering like the Fed would hope then the $85 billion in money printing per month is just not working in the way that they hoped. The one way it has been effective is in boosting asset prices, making the rich richer but doing nothing for the unemployed. For this reason I asked on Twitter yesterday:

Minyanville’s Todd Harrison, who you can see in the new documentary about the Fed “Money For Nothing” (now in theaters), responded with a third reason and I totally agree. The Fed is now trapped. It’s printing $85 billion per month which is having very little if any positive effect on the economy yet it can’t stop without risking major repercussions.

As Stan Druckenmiller recently told Bloomberg:

If you didn’t believe before that the exit was gonna be tough, the mere hint that maybe in 3 months, if the economy’s good, we might go from 85 billion a month to buying 65 billion a month caused that kind of havoc and risk around the world how in the world does anybody think that when the actual exit actually happens prices are not gonna respond? It’s silly.

Ben Bernanke & Co. were clearly listening. Long-term interest rates nearly doubled on the mere mention of tapering while a few emerging markets saw their stock prices crash and foreign currencies went nuts. So the decision not to taper probably had less to do with the data and much to do with Fed officials fearing the ramifications of actually removing QE even to a small degree.

money_for_nothing_-_p_-_2013

So we have a Fed fearful of what might happen to the markets and economy if QE is removed and, in stark contrast, investors celebrating the decision by pushing stock prices to new highs. If this isn’t the height of irony I don’t know what is.

At some point Mr. Market is going to realize that this isn’t at all bullish. In fact, the decision not to taper after laying all the groundwork may end up being an inflection point for investor confidence in the Fed. Fortune magazine ran an article earlier this week with the headline, “The Fed Has Lost All Credibility.” It concludes:

Lately it has been getting harder to believe Bernanke. He was continuing to say that the Fed won’t raise interest rates until mid-2015, yet by the Fed’s estimates and others, the unemployment rate by that point would be getting close to 6%, past where most people expect the Fed to raise interest rates. Wednesday’s taper two-step will diminish Bernanke and the Fed’s credibility further. The market went up today because it caught Bernanke in a lie. That will make it harder for Bernanke, and the Fed, to claim it really means it next time. So much for the power of communication.

I’ve been warning for months that when the Fed’s “confidence game” comes to an end it won’t be pretty for the markets. And the endgame may now be in sight.

Posts from earlier this week:

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Investing, Markets, Trading

Mr. Market Casts His Vote

With the stock market falling over 300 points right now it’s pretty plain to see how Mr. Market feels about Mr. Obama’s win last night. For what it’s worth I think this is a pretty decent buying opportunity.

The market feels like it wants to shake out the weak hands before forming a short-term bottom that would set the stage for the typical holiday rally. There aren’t many bulls around; stocks are pretty fairly valued; Nasdaq and Russell 2000 are sitting pretty close to support at their 200-day moving averages; and any positive news regarding the fiscal cliff could be a boon to prices of risk assets.

All in all, I’m taking the other side of Mr. Market’s reaction today and turning cautiously bullish at current levels.

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Uncategorized

You Should Be Outraged By The Mere Existence Of This “Secret Executive Branch Agency”

I came across a news story today that I felt compelled to share here. Because it gets right at the heart of who we are as a country and what we stand for it is a must read for every American.

For the record, I consider myself a political independent in the Richard Jeni tradition. I have no axe to grind personally. Still, I must say that this program being implemented and made permanent by the current administration is an abomination in my eyes. I urge you to read it and make your own conclusions.

Here’s just a snippet:

What has been created here – permanently institutionalized – is a highly secretive executive branch agency that simultaneously engages in two functions: (1) it collects and analyzes massive amounts of surveillance data about all Americans without any judicial review let alone search warrants, and (2) creates and implements a “matrix” that determines the “disposition” of suspects, up to and including execution, without a whiff of due process or oversight. It is simultaneously a surveillance state and a secretive, unaccountable judicial body that analyzes who you are and then decrees what should be done with you, how you should be “disposed” of, beyond the reach of any minimal accountability or transparency.

Please read the whole article at The Guardian. Hat tip, BusinessInsider.

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