The Wall Street Examiner » Must Read Get the facts. Fri, 22 Aug 2014 01:46:46 +0000 en-US hourly 1 World Stock Markets Trading Discussion – Uninspired undulations Fri, 22 Aug 2014 01:46:46 +0000 This is a syndicated repost courtesy of The Daily Stool. To view original, click here.

Early openers crunching upwards: Kiwis +0.2%, Aussies +0.3%, Nikkei +0.2% and Sth Korea +0.6%.

Modest motion in Aussie sectors: Energy +0.9% down to Miners -0.5%.







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How the DOJ Should Pursue Bank of America (NYSE: BAC) and Other Big Banks Thu, 21 Aug 2014 21:32:00 +0000 This is a syndicated repost courtesy of Money Morning. To view original, click here.

The $17 billion settlement reached today (Thursday) between the U.S. Department of Justice and the subprime mortgage meltdown progenitor, Bank of America Corp. (NYSE: BAC), is the largest penalty of its kind in U.S. history.

But it’s still not enough.

The settlement came as a result of government accusations made against BAC and Countrywide Financial Corp. and Merrill Lynch & Co., both of which BAC acquired at the height of the financial crisis. The Justice Department accused the three banks of engaging in abusive and negligent due diligence practices in its mortgage businesses and failing to publicly document the problems in the mortgages underlying securities sold to investors.

The $17 billion fine includes a nearly $10 billion settlement spread across government agencies, state governments, and the U.S. Department of Justice, as well as another $7 billion that will go toward providing mortgage relief to consumers.

But these three banks were instrumental players in the subprime collapse; a settlement of this caliber is insufficient for what they did – despite the government’s praise over the deal…

Bank of America (NYSE: BAC) Settlement a “Pay to Play” Move

Associate U.S. Attorney General Tony West in a press conference this morning heralded this action against BAC as momentous, not only because of its steep, record-setting, $17 billion price tag, but also because “it achieves real accountability for the American people.”

The accountability comes in the form of a “statement of facts” that BAC will have to sign, admitting to their wrongdoings in the run-up to the housing collapse.

But these penalties do very little to force accountability out of these banks that were the architects of the financial sector’s demise. Real accountability would deliver justice to the individuals responsible and not allow them to hide behind the banner of their financial institution.

Like the other multi-billionaire penalties that have been leveled against big banks such as Citigroup Inc. (NYSE: C), JPMorgan Chase & Co. (NYSE: JPM), and BNP Paribas SA by the Justice Department, it’s clear that this is just the latest in federal regulators’ “paying to keep playing scheme,” said Money Morning Capital Wave Strategist Shah Gilani.

“The government – that includes Justice or any of the regulatory bodies or attorneys general – keeps extracting, some say extorting, monies in the form of penalties from settling parties without any personal accountability,” said Gilani, who is also the editor of Wall Street Insights & Indictments. “It’s about the money; it’s not about justice.”

This strategy is ineffective – but there is a way that justice and real accountability could be achieved…

“Fine the banks exorbitantly and make them cough up all the responsible parties within the organization and let them be charged and defend themselves,” Gilani said. “If that happens regularly and officers and managers and traders and whoever is committing crimes to benefit the institution and/or their pay arrangements go to jail, the next time anyone thinks about committing a crime, they’ll think twice.”

Until then, nothing will change on Wall Street.

“By extracting penalties from big banks and not ever pursuing individuals, our executive branch is saying, ‘We’ll fine you but not put you out of business, nor will we make your executives worry about their actions, they will be free to keep on figuring out how to make money for you and themselves… good luck and we’ll probably see you again,’” Gilani said.

More from Shah Gilani: Private equity shops and institutional players are buying and packaging nonperforming mortgages from the Federal Housing Administration and selling those mortgages to mutual funds and themselves. It’s yet another prime example of “The strong get more while the weak ones slave…”

The post How the DOJ Should Pursue Bank of America (NYSE: BAC) and Other Big Banks appeared first on Money Morning – Only the News You Can Profit From.

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A Short Term Watch Out For High RSI and Low Trin Thu, 21 Aug 2014 20:42:00 +0000 This is a syndicated repost courtesy of The Fat Pitch. To view original, click here.

In our weekend post (here), we specifically warned how a break back above the 50-dma for SPX has been a momentum kick off in the past. This has been when the long win-streaks have taken place (yellow). This remains the big picture view for SPX.

SPX has since risen 4 days in a row. There are two studies indicating that short-term (1-2 days) weakness is ahead, followed by at least one higher high.

Recall that on August 7, Trin closed over 2, which was a probable indication of a washout low (here). Trin is a breadth indicator. It is derived by dividing the advance-decline ratio for issues by that for volume. A close over 2 meant that down-volume was twice down-issues; in other words, that stocks had fallen on relatively high volume. In the event, that marked the exact low.

On Wednesday, Trin closed at the other extreme: 0.5. That means participation was light relative to volume.

The chart below looks at similar instances in the past two years. There were more than 10 of these; in all but one, SPX gave back all its subsequent gains over the next few days. That means either SPX fell the next day or, if it rose, that it gave up those gains in the days ahead. The latter situation now applies.

In only three instances did the low Trin mark a top of some significance. In most cases, SPX continued higher.

Today (Thursday), SPX has risen further. The hourly RSI (5) closed above 95 in the morning. This is quite unusual; since 2013, it has happened only 13 times. An RSI this high indicates a very hot market. That strength usually leads to further gains in the days ahead, but it is also followed by some softness.

The chart below looks at similar instances since 2013. In each case, SPX fell and then continued higher. The most recent case was just last Friday (recall the market’s large fall in the morning and then its afternoon rebound).

The chart below looks at similar instances in 2011 and 2012, with the same conclusion. Twice, the high RSI occurred very close to significant top but SPX was not at a 52-week high (like now) in either case.

Again, in the big picture, SPX should continue higher. If past is prologue, SPX should experience some weakness first. In many cases, the 5-dma (green line in the last two charts above) is reached. That implies a retest of the 198 support level (yellow band).  An hourly RSI below 30 should be a useful indicator to watch.

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The 8 Biggest Data Breaches in History Thu, 21 Aug 2014 19:42:07 +0000 This is a syndicated repost courtesy of Money Morning. To view original, click here.

As more of our lives go digital, the threat of data breaches becomes more of a concern to everyone – consumers, businesses, and the government.

And the security breaches seem to be coming more frequently. Just today (Thursday), the United Parcel Service Inc. (NYSE: UPS) said that 51 stores in 24 states had been hacked and some private customer data stolen.

While only a fraction of cyberattacks are successful – hundreds of thousands are made every day – the few that do succeed typically cause a lot of harm.

That’s why cybersecurity has become a priority for government and businesses alike. They all dread data breaches that become media circuses and tarnish reputations.

And no wonder. Target Corp. (NYSE: TGT) is still suffering from weaker sales resulting from its data breach last fall, when hackers stole 40 million customer credit card numbers and other personal data, like email addresses, from as many as 70 million customers.

The infographic below shows the eight biggest data breaches in history – all of which have happened within the past decade.

Infographic of Data Breaches
Infographic courtesy of: Who Is Hosting This?

Follow me on Twitter @DavidGZeiler.

UP NEXT: Established companies get most of the attention, but startup companies are where the world gets its best ideas. Here’s an infographic that illustrates why startups matter so much, from the vital role they play in the economy to how they will change the world…

The post The 8 Biggest Data Breaches in History appeared first on Money Morning – Only the News You Can Profit From.

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Gold Prices Hit 64-Day Low Following Hawkish Fed Minutes Thu, 21 Aug 2014 19:33:43 +0000 This is a syndicated repost courtesy of Money Morning. To view original, click here.

Today’s gold prices fell to levels not seen since mid-June.

By market close Thursday, the yellow metal will have fallen for a fifth-straight session – its longest slump since June 2.

Spot gold was down $16.80 (1.32%) to $1,274.60 an ounce as of 1 p.m. EDT, after closing at $1,291.40 in the previous session.

Gold futures for December delivery on the Comex in New York also fell 1.4% to $1,275.80 after touching $1,274 earlier this morning – the lowest for a most-active contract since June 18. The decline put the yellow metal under its 200-day moving average.

Hawkish words in the Federal Open Market Committee’s (FOMC) July meeting minutes, released Wednesday afternoon, are what weakened gold prices starting after-hours yesterday.

You see, last month, some Committee members commented that despite improving labor market numbers, the Fed was not going to increase short-term interest rates earlier than expected. But yesterday’s minutes revealed that if the economy continues to strengthen more than expected, the central bank may change its mind.

Whether or not the Fed actually adjusts its interest rate schedule, the speculation alone moves markets in a way that’s bad for gold prices, for these two reasons…

The Relationship Between Gold Prices and the Fed

The Fed and Gold Prices

The U.S. Federal Reserve’s suggestion that it may raise interest rates earlier than expected did two things to weigh on gold prices.

First, it pushed the U.S. dollar to an 11-month high today. A stronger dollar weighs on gold, because it is priced in dollars.

And second, higher interest rates are bad news for gold prices, which typically weaken when rates go up because investors seek out higher-yielding assets.

“The market is digesting the likelihood of the Fed raising rates, given the improvement in the numbers,” Long Leaf Trading Group chief market strategist Tim Evans said to Bloomberg. “That’s very dollar-bullish, and it’s creating a lot of pressure on dollar-denominated assets, especially gold.”

Starting mid-year, the Fed has been hawkish on its plan to hike interest rates as soon as the first quarter of 2015. In July, Fed Chairwoman Janet Yellen said that interest rate increases may come “sooner and be more rapid than currently envisioned” should the labor market improve more quickly than anticipated.

“I guess we had to see it happen at some point, gold breaking in the face of dollar strength,” FuturePath Trading broker and futures analyst Frank Lesh said to Kitco. He added that the fall in Thursday’s weekly jobless claims data is “not helping those who think (interest) rates may stay low longer.”

But Money Morning Resource Specialist Peter Krauth says that despite Fed policy changes, gold prices will break out in coming months.

Here’s why…

Look for a Gold Price Breakout Before 2015

You see, Krauth has his eye on inflation, an upward pressure on gold prices. Estimates have Americans facing inflation greater than 3% or even 4% for the rest of 2014 and 2015.

That would send gold prices higher. As the value of a currency decreases – which is an effect of inflation – the price of precious metals increases. A declining value of a currency means that it takes more of that currency to purchase an ounce of the metal.

“While the inflation rate is still relatively low, there are increasing signs of rising inflation,” Krauth said. “It’s still early in this trend, but once we have a few consecutive quarters of close to 2% inflation, I think the market will start to expect continuing rising inflation, making gold more attractive.”

Money Morning recently delivered for our Members a two-part “cheat sheet” that outlines the right amount of gold for your portfolio. You can get that gold investing guide – for free – here.

The post Today’s Gold Prices Hit 64-Day Low Following Hawkish Fed Minutes appeared first on Money Morning – Only the News You Can Profit From.

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How the Fed Has Moved Silver Prices in 2014 Thu, 21 Aug 2014 18:29:11 +0000 This is a syndicated repost courtesy of Money Morning. To view original, click here.

For all the discussions of inflation and labor market conditions going on at the U.S. Federal Reserve’s policy meetings this year, it would be expected that the Fed’s words would be felt in silver prices in 2014.

Fed has had marginal effect on silver prices in 2014Silver is a precious metal investment like gold, and when fears of inflation arise it attracts investor interest as an alternative investment to hedge against a weakening dollar. Gold is the premier precious metal, but when traders begin to pour into gold, silver will get residual investor interest.

And it will generally move more dramatically than gold, because trade volume is significantly smaller for silver than its sister metal.

“The silver market is tiny compared to the gold market,” Richard Checkan, president and chief operating officer of Asset Strategies International told Money Morning. “It’s like throwing a rock into a lake versus a puddle; the relative splash is much bigger in the puddle.”

Silver’s price moves this year highlight its volatility. It has gained as much as almost 5% in a single day, and lost as much as 3%.

With the Fed this year continually echoing the refrain that interest rates will remain low for a “considerable” period, the ground would seem fertile enough for huge gains in silver, given that a long period of accommodative monetary policy, such as a low interest rate environment, is more conducive to inflation.

But this year, that hasn’t been the case…

Silver’s Moves on FOMC Days

For being as volatile an asset as silver is, on days where the Fed occupies headlines – either through its Federal Open Market Committee (FOMC) meetings or the meeting minutes release that occurs three weeks later – the white metal has generally moved only very marginally.

Just check out the following chart of silver price moves on Fed news days…

As the chart shows, on average, FOMC events will push silver prices down 0.3%, or about $0.07. While there are more times the metal’s price has climbed instead of slipped around the time of a Fed event, the losses have been bigger than the gains.

Silver prices saw their biggest price decline that can be attributed to Fed guidance on Feb. 19, the day that the central bank released minutes from its meeting in January. Prices dropped $0.425 an ounce, or 1.9%.

This was a sizable one-day drop, and was the tenth-largest decline on the year.

The release of the January meeting’s minutes on Feb. 19 was significant in that it was the first time that the FOMC acknowledged that the 6.5% unemployment rate threshold guidance – which dictated that this unemployment figure was a signal that interest rates ought to rise from their near-zero level – should be revised. This was because the unemployment rate was at 6.6%, and the Fed was not willing to tighten monetary policy so quickly.

But the more likely culprit in silver’s decline, if anything from the FOMC minutes, was the fact that instead of toeing the same line on a prolonged period of low interest rates, “a few participants raised the possibility that it might be appropriate to increase the federal funds rate relatively soon,” according to the minutes. The prospect of an accelerated increase in interest rates would work to dampen inflation fears, and prompt investors to flee from silver.

The biggest single-day gain for silver on an FOMC-driven news day came on Jan. 29, the date of an actual FOMC meeting. Prices rose $0.15, or about 0.8%.

Compared to silver’s biggest increases on the year, this was relatively small, and was the 34th-largest one-day gain in 2014. To put this in perspective, on silver’s biggest day this year, Feb. 14, it jumped about 5% and gained $1.02.

The meeting of that day was pretty uneventful, and was only notable in that it was the last for former Fed Chairman Ben Bernanke.

Another noteworthy increase in silver came after the FOMC meeting on June 18. It was current Fed Chairwoman Janet Yellen’s third meeting at the helm, and it came three months after she slipped up in a press conference and, knowingly or not, made a statement that seemed to indicate interest rates would spike quicker than expected. On that day in March, markets shook at the prospects of an accelerated rate hike.

But in June, when asked about the interest rate increases in a post-FOMC meeting press conference, she stayed mute, and continued to play by the Fed script of articulating a low-rate policy for a long time.

Her reticence on interest rates helped push silver up $0.14, and more importantly, helped sustain an unexpected silver rally where silver gained as much as 14.3%.

Now Today’s Top Investing Story: Apple (Nasdaq: AAPL) and IBM (NYSE: IBM) have had one of the bitterest tech rivalries of the past 30 years. But now these two industry giants have joined forces – and it will benefit one stock the most…

The post How the Fed Has Moved Silver Prices in 2014 appeared first on Money Morning – Only the News You Can Profit From.

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What a Gallup Poll Tells Us About Equities Thu, 21 Aug 2014 17:49:00 +0000 This is a syndicated repost courtesy of The Fat Pitch. To view original, click here.

A lot of attention is being given a Gallup poll showing that the general population is unaware of the bull market in stocks.  Only 24% knew the stock market had risen more than 20% last year. 30% said stocks were flat to lower last year.

Is their lack of stock market knowledge surprising?

It would be easy to poke holes at Gallup who, recall, famously called the comfortable victory for President Romney in 2012. But the Gallup poll on stocks is probably fairly accurate.

When polled, here are other things a third or so of Americans didn’t know:

  1. The name of the world’s largest ocean, to the west of California.
  2. The year 9/11 took place.
  3. The name of the country the American Revolution was fought against.
And a third or so believe:
  1. The earth is the center of the universe.
  2. Ford Foundation, Rockefeller Foundation and Monsanto are trying to shrink the world’s population using GMO foods.
  3. Someone they know has been abducted by aliens.
According to Gallup, about 46% of US investors are optimistic about stocks. This is the same proportion that were optimistic in early 2011, before a 20% correction, and in early 2012, before a 10% correction (arrows). They were more optimistic in early 2013, the year when stocks did not have any significant pullback. Maybe their views are not contrarian. Or, more likely, this is just noise.

There’s no reason to infer how investors are allocated to equities based on the Gallup poll. The Federal Reserve publishes this data regularly, the most recent is shown below (chart from Short Side of Long).

More data on investors’ sentiment towards, and allocation to, equities can also be found here. The overall picture is very consistent.

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4-Year 8-Month TIPS Treasury Auction Results Thu, 21 Aug 2014 17:02:55 +0000 This is a syndicated repost courtesy of Treasury Auction Results. To view original, click here.

CUSIP: 912828C99
Term and Type: 4-Year 8-Month TIPS
Series: X-2019
Reopening: Yes
Interest Rate: 0.125%
High Yield: -0.281%
Price: $103.623896
Allotted at High: 52.23%
Total Tendered: $39,686,578,200
Total Accepted: $16,000,008,200
Auction Date: 08/21/2014
Issue Date: 08/29/2014
Maturity Date: 04/15/2019

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(What’s Left of) Our Economy: Words of Warning on Manufacturing Surveys Thu, 21 Aug 2014 15:35:29 +0000 This is a syndicated repost courtesy of RealityChek. To view original, click here.

Today was a pretty big day for U.S. manufacturing data, with the release of an advance August survey by the respected research firm, and of the Philadelphia Federal Reserve bank’s closely watched gauge of manufacturing activity in some of the middle Atlantic states. There’s lots more monthly manufacturing data to come in the next few days, so it’s important to understand that these types of reports in particular can present a seriously misleading picture of manufacturing’s health. They’re by no means completely worthless. But their results need to be taken with a big grain of salt.

Here’s why: The Markit reports – as well as the surveys released each month by various regional Federal Reserve banks and the monthly results of the Institute for Supply Management – present the results of what are called diffusion indices. That is to say, they show the percentage of the firms surveyed that report a better performance in whatever is being measured over a certain timeframe (e.g., overall business conditions, employment, new orders), a worse performance, or about the same performance.

The big problem with diffusion indices: They usually suffer what statisticians call “survivorship bias.” They only survey the performance of companies that are in existence during the particular time period being examined. Because they don’t, therefore, say anything about how the number of companies in existence has changed over time, much less about the actual production or employment levels of these companies, they create a picture of overall manufacturing activity in the location in question that’s at best highly incomplete.

Before I was even aware of the formal concept of survivorship bias, I learned about it in practice from talking with manufacturing executives who belonged to my former organization, the U.S. Business and Industry Council. Especially as the current recovery took hold, I would regularly ask them how their own companies were faring. The response I often heard? “Never (or rarely) better!”

So I then asked them why they remained in the Council, which has long warned of major competitive weaknesses in domestic industry. I expected most to emphasize continuing uncertainty about the future, and a reluctance to read too much into the present – especially considering that virtually none was adequately prepared for the Great Recession. And uncertainty was certainly mentioned.

Even more often, however, these business owners and managers explained that they were benefitting significantly from the demise of weaker domestic rivals. Because so many so many firms that were perfectly viable and competitive during normal times were suddenly drowned by the worst U.S. downturn since the Great Depression, the remaining companies were able to win the business formerly held by the losers once growth and even stability began to return.

As the USBIC members put it, they were taking advantage of pie that was growing much more slowly – if it was growing at all – because so much more of it was up for grabs than ever before. But they remained deeply concerned about the future overall size of the pie, which they correctly believed was crucial both to a return to genuine overall U.S. economic health and to national security.

A February article of mine on the Institute for Supply Management’s monthly manufacturing index showed how its survivorship bias was producing results often sharply at odds with the national manufacturing production figures put out by the Federal Reserve, which are far from perfect, but which do attempt to measure actual industrial output and its rise and fall. I haven’t tracked the relationship between the Markit and regional Fed manufacturing results on the one hand, and industrial production on the other, but it’s entirely reasonable to suppose that a notable gap exists there, too.

These diffusion index surveys can contain some useful information about the momentum of domestic manufacturing. And the regional Feds regularly ask manufacturers in their geographic districts interesting and important questions about specific policy and other challenges and opportunities they face. (This morning’s Philly Fed report included some fascinating information about how manufacturers in that region are reacting to Obamacare.) That’s why I follow and report on them. But understanding the true state of domestic manufacturing requires looking at a much wider range of material. Relying solely or even largely on diffusion index surveys is one of those tempting shortcuts that can lead you seriously astray.

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Another Reason to Retire Sam Brownback: The Senate Subprime Car Loan Sleaze Thu, 21 Aug 2014 12:53:29 +0000 This is a syndicated repost courtesy of New Economic Perspectives. To view original, click here.

When Sam Brownback was a Senator he carried water for the sleaziest of auto lenders – the subprime lenders that specialize in making “liar’s” loans.  His successful mission was to carve out an exemption from the Dodd-Frank bill’s protection for borrowers.  We had just seen the CEOs controlling similar home lending specialists lead the three mortgage fraud epidemics that blew up the global financial system.  The bill’s drafters and President Obama strongly opposed the Brownback carve out, but Brownback’s brigade of auto lobbyists made road kill of their opponents.


The New York Times article, of course, never uses the “f” word to describe the subprime auto sleaze that exploited Brownback’s carve out to run a classic accounting control fraud, but all the necessary facts are in the article.  It’s the same old fraud recipe for a lender – and for the secondary market purchasers of the toxic loans.

  1. Extreme growth through making
  2. Terrible quality loans at a premium (nominal) yield while employing
  3. Extreme leverage and
  4. Pathetic loss reserves

As with the nonprime home mortgage fraud epidemics the “sure thing” of surging defaults and borrowers who lose their asset (their car) and are left deeply in debt with ruined credit ratings has become a daily reality.  Tens, perhaps hundreds of thousands, of borrowers will be pushed into bankruptcy.  This fraud scheme will cause severe losses to the lenders and the secondary market purchasers, but it has delivered the other  two “sure things” that the fraud recipe delivers – record (albeit fictional) reported profits in the near term that make the controlling officers wealthy through modern executive compensation.  The officers will walk away wealthy while the companies crater, as George Akerlof and Paul Romer explained in their classic article “Looting: The Economic Underworld of Bankruptcy for Profit” in 1993.

Brownback should be held accountable for pimping for the auto loan sleaze.  He knew better.  He had just seen the same kind of accounting control fraud schemes cause catastrophic damage to our Nation.  His actions allowed the same kind of fraud schemes to harm hundreds of thousands of Americans including many of his poorer constituents in Kansas.

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