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Friday, June 25, 2010

Financial Regulatory Reform: Senator Scott Brown Just Sold You Out (Video)

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Senator Scott Brown (R-MA) Wins Special Election on January 19, 2010 to Fill Edward Kennedy's Seat


Tea Party Republican Protects Wall Street Banksters

Senator Scott Brown's backroom deal allows Big Banks to invest up to 3% of capital in proprietary trading or hedge funds. The proposed Volcker Rule would have banned this practice. Funny thing is, the Wall Street Banksters are already investing less than 3% of capital, so this is a ineffective limitation. However, a Too Big To Fail Bank can still fail even with the 3% limitation. That's where you and me come in, to pay for future failures once again. After all is said and done on this financial regulatory reform, the existing version is more said than done.

So far, the Financial Regulatory Reform is a sham to placate American taxpayers while Wall Street goes on their merry, free, and profitable way.


Dylan Ratigan: Brown's Bank Bill Loophole

Brown Ensures Banks Keep Making Risky Bets

Also in this video, for seeing how Washington really works, Senator Carl Levin (D-MI) blocks Earmark Transparency Legislation by Senator Tom Coburn (R-OK). Transparency too tough? Finally, the son of Harry Reid (D-NV), Rory, distances himself from his father in a political campaign for Nevada Governor.





Links


Why Wall Street Will Love The 3% Solution in Reform Bill (CNBC)
Bill Isaac Says Financial Reform Won't Stop Next Crisis (Wall Street Pit)
Banking and Trading Don't Mix: Volcker (CNBC)
Bill Isaac is former Chair of FDIC, Paul Volcker is former Chair of the Federal Reserve

 
About Senator Scott Brown (R-MA)

Scott Brown upon being elected to U.S. Senate in Connecticut: “I have always just wanted to go down and solve the problem regardless of party”. That translates to solving problems of Big Banks, but not the problems of USA Taxpayers who just keep on paying for a rigged system that Senator Brown is intent on preserving. "They keep the money, you get the bill"- Dyaln Ratigan.

In Brown's first appearance as a Massachusetts Senator, he stated:
“I am very thankful for the tea party’s support," said Brown, according to the Boston Herald. "If I didn’t have the support of all different types of groups, I never would have been elected. I was sent here by the Tea Party members -- and everyone else -- to do my job. My role now as an elected official is to do my job.”
"I Respect Palin, Tea Party" (Newsmax)



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Wednesday, June 23, 2010

FOMC: Economic Recovery Is Proceeding

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Federal Open Market Committee Meeting


Economic Recovery Is Proceeding and Labor Market Is Improving Gradually

Economic Conditions Another cautiously optimistic statement by the FOMC stating the "economic recovery is proceeding" and the "labor market is improving gradually". Housing starts "remain at depressed levels" and "bank lending has continued to contract in recent months". Some good news and some bad news but a net positive that there is an economic recovery occurring.

Moderate Recovery "Moderate" is still the theme for the Fed as the FOMC noted "the pace of economic recovery is likely to be moderate for a time". The Fed Beige Book on June 9 noted continued, modest improvement of economic activity and conditions in the last 8 weeks. Chairman Ben Bernanke, also on June 9, stated to the House Committee on the Budget "the recovery in economic activity that began in the second half of last year has continued at a moderate pace so far this year".

European Risk Europe was mentioned, "Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad". The previous April 28 statement said "financial market conditions remain supportive of economic growth" and did not mention "developements abroad". "Have beome less supportive" is not as positive as "remain supportive". 

Zero Interest Rate Environment Interest rates to remain 0.00%-0.25%, at "exceptionally low leve.s, for an "extended period". Sounds like for the remainder of 2010 at least.

Conclusion Bank lending continues to contract and housing starts remain at depressed levels, same as the April 28 statement. The labor market is "improving gradually" compared to "beginning to improve" noted on April 28. The European sovereign debt crisis and financial system crisis are the new negative variable in the FOMC June 23 statement, compared to  the April 28 statement. The European risk is "less supportive" of economic growth". The Committee expects the "economic recovery is likely to be moderate for a time", but continues to "anticipate a gradual return to higher levels of resource utilization", the same as the April 28 statement.

Below are the FOMC June 23 and April 28 statements.


FOMC Statement: June 23, 2010


Federal Open Market Committee
Release Date: June 23, 2010
For immediate release

Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually. Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be moderate for a time.

Prices of energy and other commodities have declined somewhat in recent months, and underlying inflation has trended lower. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

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, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer-run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly.


FOMC Statement: April 28, 2010


Release Date: April 28, 2010
For immediate release

Information received since the Federal Open Market Committee met in March suggests that economic activity has continued to strengthen and that the labor market is beginning to improve. Growth in household spending has picked up recently but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures is declining and employers remain reluctant to add to payrolls. Housing starts have edged up but remain at a depressed level. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

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, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

In light of improved functioning of financial markets, the Federal Reserve has closed all but one of the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities; it closed on March 31 for loans backed by all other types of collateral.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly.


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Monday, June 21, 2010

Chinese Yuan Jumps to 21 Month HIgh (Video)

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Chinese Currency: yuan aka renminbi


China Ends 2 Year Peg to Keep Yuan at Lower Levels


The Chinese announcement to end their currency peg has affected markets worldwide, being bullish for equities and commodities. The USA, President Obama and Congress, have been calling for a revaluation or floating yuan versus the US Dollar, as have other countries and their currencies. The fixed-rate yuan gave China a trade advantage.

Now the probability is that Chinese goods will be more expensive in the USA and the Chinese will have more purchasing power in their home country. So, there may well have been some pressure in mainland China to "give everyone a raise". The media has kept reporting of labor unrest in China and this would be more pressure on the Chinese leadership than President Obama, Treasury Secretary Geithner, and ramped up verbiage in Congress. China can and will stop or slow down the the yuan exchange rate at any point the leadership determines it is to their ultimate advantage to do so, of course.

The G20 nations meet this weekend and this may have been a minor factor. I think the primary factor was labor unrest at home, in China. The G20 meeting is a bigger deal normally to the media than it is on actual implementation of significant policies, a great photo op for the world leaders, and the rhetoric is astronomically high for the world and home audiences.

CNBC Squawk Box video with Boris Schlossberg, GFT Forex researcher, discussing this overnight change in Chinese currency policy below:

Watch CNBC Video HERE.

The positive aspect is China appears optimistic about the global economic recovery to implement this policy.


Links

Google Finance, US Dollar/Chinese Yuan, USDCNY




Chinese Yuan Under Scrutiny Before G20 Meeting (Reuters)






















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Thursday, June 10, 2010

What Fed Chair Bernanke Said to Congress

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A Quick Review of What Bernanke Said to Congress

Chairman of the Board of Governors of the Federal Reserve System
Ben Bernanke appeared before and made a statement to the Committee on the Budget, U.S. House of Representatives, on June 9, 2010.  Chairman Bernanke's statement is summarized below (italics, emphasis added) in which he had the "opportunity to offer my views on current economic and financial conditions
and on issues pertaining to the federal budget."

Economic Outlook & Growth
"The recovery in economic activity that began in the second half of last year has continued at a moderate pace so far this year. Moreover, the economy - supported by stimulative monetary policy and the concerted efforts of policymakers to stabilize the financial system - appears to be on track to continue to expand through this year and next. The latest economic projections of Federal Reserve Governors and Reserve Bank presidents, which were made near the end of April, anticipate that real gross domestic product (GDP) will grow in the neighborhood of 3-1/2 percent over the course of 2010 as a whole and at a somewhat faster pace next year."
A) Consumer Spending "Consumer spending is likely to increase at a moderate pace going forward, supported by a gradual pickup in employment and income, greater consumer confidence, and some improvement in credit conditions."
B) Business Spending "posted another solid gain in the first quarter, and the increases were more broadly based than in late 2009; the available indicators point to continued strength in the second quarter."
C) Manufacturing Output "which has benefited from strong export demand, rose at an annual rate of 9 percent over the first four months of the year."

Economic Constraints
"At the same time, significant restraints on the pace of the recovery remain."
A) Housing Activity "Housing activity appears to have firmed only a little since mid-2009."
B) Nonresidential Buildings "Nonresidential buildings also is being held back by high vacancy rates, low property prices, and strained credit conditions."
C) Labor Market "we have begun to see some modest improvement recently in employment...however, a significant amount of time will be required to restore the nearly 8-1/2 million jobs that were lost over 2008 and 2009."

Inflation
"recent data continue to show a subdued rate of increase in consumer prices."

Developments in Europe
"our ongoing international cooperation sends an important signal to global financial markets that we will take the actions necessary to ensure stability and continued economic recovery."

Fiscal Sustainability
"Nevertheless, history makes clear that failure to achieve fiscal sustainability will, over time, sap the nation’s economic vitality, reduce our living standards, and greatly increase the risk of economic and financial instability.  Our nation’s fiscal position has deteriorated appreciably since the onset of the financial crisis and the recession."

Conclusion
Chairman Bernanke's statement is in line with the Fed Beige Book, which was also released the same day, June 9.  A quick review of the Beige Book is here.  "Moderate" is the theme in describing USA growth and expansion of economic activity and conditions.  The USA economic recovery continues at a moderate pace, 2010 GDP is projected at +3.5%, and 2011 GDP will be at a "somewhat faster pace".  The labor market has some "modest improvement" but a "significant amount of time" will be required to restore all the jobs lost.  The Fed Beige Book noted the labor market "improved slightly" in the last 8 weeks. Inflation is a non-issue, the Fed is cooperating with Europe to "ensure stability and continued economic recovery", and the USA fiscal position has "deteriorated appreciably".  There were no surprises in Chairman Bernanke's statement, which was carefully worded and cautiously optimistic.

Q&A with the Committee is for the Representatives to make statements and ask questions to score political points, further their own political agenda, promote the special interest groups that support them, create sound bites for the media and voters, and blame someone else, even Chairman Bernanke, for the USA economic problems and bankrupting of America because of their Congressional spending and lack of oversight.  Much finger pointing and "I told you so" ensues afterwards from opponents of Bernanke and patting on the back and  "I told you so" from the supporters of Bernanke.  Regardless, Congress continues spending to ensure they are re-elected, the entitlements are provided to a vast proportion of the voters, and the special interest groups are given good service for the money they have paid to the Representatives.  Therefore, no review of the Q&A is presented here.  However, the Q&A is the entertainment portion of the session, which most people would find boring and dry otherwise.  There is a reason economics has been called the "dismal science".

Federal Reserve System
The text of Chairman Bernanke's speech is here.


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Monday, June 7, 2010

USA Economic & Market Update


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USA Economic and Market Update


(Update 1)
The Euro has stabilized mostly on positive manufacturing data from Germany.  However, the Euro is probably going lower to $1.16 versus the US Dollar and ultimately to at least parity (Euro = $1.00).  The European Crisis, which is really a solvency crisis, continues.  Fear of contagion, that is the Greece Crisis spreading to other countries such as Spain, Portugal, Ireland, and finally Italy, has resulted in the Euro continuing downwards.

A) Greece Sovereign Debt Crisis, now the EU & Euro Crisis First Greece overspends, then the EU, ECB, and IMF bail the Greeks out, then fear of contagion to Portugal, Ireland, Spain, perhaps Italy and even UK increases.  This week Spain was downgraded by Fitch from AAA to AA and on May 28 the French Budget Minister said France could not ultimately maintain their AAA credit  rating.  First Greece was downgraded and crisis ensued, then Spain was downgraded - next Portugal and Ireland, then later Italy.  Now the value and viability of the Euro itself is suspect, along the EU banking system and overall EU financial and economic system.  Until the world is convinced the EU can hold together and remain viable, market fear and volatility will continue and the USA equity markets are in limbo with little hope of regaining the 2010 YTD highs.  The more the IMF intervenes to bailout the EU, the more the USA does, since the USA contributes billions to the IMF.  USA taxpayers to the rescue!  The EU appears to have solved the liquidity crisis, but whether the solvency crisis can be ultimately be resolved is in doubt.  Hence, the viability of the EU is in question.  Nouriel Roubini summed up the Euro Crisis here.  More about the Euro here.

B) Financial Regulatory Reform Meanwhile, back in the USA, the political battle continues to reform the financial system, which creates uncertainty first within the financials sector  and then within the markets.  Some more information on this is posted here.  After any financial reform is passed by Congress, this should eliminate the uncertainty for at least the rules of the road, and then the related financial system impact can be determined.

C) Leading Economic Indicators (LEI) The Economic Cycle Research Institute reported their Weekly Leading Index fell to a 39-week low and the annualized rate to a 47-week low.  Previously, The Conference Board reported that their USA Leading Economic Index decreased by -0.1% in April.  While this is an immaterial decline, it is nonetheless disappointing, and possibly disturbing, because any significant economic recovery should continue showing monthly positive gains for LEI.  For the 6 months ended April 30, the LEI has increased +4.4% to 109.3 (2004 = 100.0).  The LEI monthly increases in 2010 have been +1.3% in March, +0.4% in February, and +0.6% in January.  Since the equity markets are also considered leading indicators, this data is not bullish for USA equities.

D) USA Unemployment (Jobs!) The BLS May Employment Situation report was disappointing and undoubtedly contributed to pulling down the markets on Friday, June 4.  Even though the unemployment rate decreased to 9.7% from 9.9% and total jobs increased +431,000, the private sector generated only +41,000 jobs while the public sector increased by +390,000.  In April, the private sector created +218,000 jobs.  Obviously, we all can't work for the government and it's the private sector job growth that will create a viable USA economic recovery.  The May U-6 unemployment rate (Table A-15, seasonally adjusted) was 16.6%, down from 17.1% in April.  In addition, the Gallup Poll reported underemployment in May at 19.1%, compared to 18.9% in April, which was also disappointing.

E) USA GDP The BEA "Second Estimate" for Q1 2010 was +3.0% and Q4 2009 was +5.6%.  Economist Peter Morici has some comments about GDP and the BLS May jobs report here, "Halting Recovery Keeps Unemployment High".  Morici states that the USA needs about +3.0% GDP growth to "pull down unemployment" and that recently actual GDP growth has been +2.0%.

F) USA Sovereign Debt Of note the week of May 31 was the funded federal debt exceeding $13 trillion!  Even more incredible is the USA GDP is approximately $14.5 trillion.  So funded federal debt is rapidly approaching the total of the entire American economy.  The debt totals can be seen at USDebtClock.org.  There will be a Day of Reckoning as Congress cannot stop spending, be they Republicans or Democrats.  Federal spending has taken on a life of its own as Congress sends  home the pork and spends on programs that are politically advantageous.  When the Day of Reckoning  will be, I do not know: 1 year? 5 years? 10 years?  The Peter G. Peterson Foundation has the best information on this national disgrace here.  David M. Walker, the former Comptroller General of the United States, is the CEO of the Foundation and has been warning about this impending disaster for years.

G) Goldman Sachs & The USA Financial System  The SEC fraud charges against GS also bring into question the fairness, validity, and viability of the USA financial system.  The Europeans are investigating GS and Merrill Lynch of Bank of America, Deutsche Bank, et.al.  There has even been a call for China to investigate Wall Street.  Until the Wall Street Banksters are brought to justice and financial system reform is implemented, the USA financial system is a fraud and corrupt - the USA taxpayers and citizens are being defrauded.  These investigations and charges will drag on indefinitely, probably for years. Markets could be impacted off and on as more Wall Street Banksters are hopefully removed from the financial and market systems.  More financial institutions will be hunted down and an examples made of them. The 3 credit rating agencies, S&P, Moody's, and Fitch also have gamed the system.  So there will be ongoing market reactions, just as with the EU, to contend with while trading.

H) Quarterly Earnings Season has all but been forgotten now that fear and suspicion rule.  Quarterly earnings have been very encouraging, especially in the technology, financial, and industrial sectors that I pay special attention to.

I) USA & World Economic Trends USA economic data has been overall positive and also for most of the World, especially Asia. Europe is now the weak link in the global recovery.  The semi-annual IMF World Economic Outlook (April 2010) is reviewed here.

J) Flash Crash! The fairness, objectivity, and validity of the entire USA equities markets, and other markets, is under suspicion.  Frankly, I think the entire USA financial system is being questioned, as noted below about Goldman Sachs.  The May 6, 2010 Flash Crash amplified and maginified the ongoing USA financial system debacle.  Are we being totally gamed, and controlled, by Wall Street?  Will the USA government take control and stop the Wall Street Banksters?  This Dylan Ratigan video sums it up.


The above commentary courtesy of Matrix Markets.


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