Some time ago Ben Bernanke's right hand man (and it certainly goes both ways), better known as the guy who is the gatekeeper to the entire shadow banking system, Jamie Dimon railed against debit interchange fees, claiming they are "counterproductive", represent "price fixing at its worst" and are "downright idiotic." Dick Durbin, who introduced the interchange fees amendment responds in kind. "I recognize that Chase will likely see decreased revenue from interchange reform, but I urge you to keep some perspective. Last year Chase had $17.4 billion in profits — up 48 percent from the previous year - and a 15 percent profit margin. Your own personal compensation "jumped nearly 1,500 percent to $20.8 million in 2010" according to Reuters. In contrast, middle-class American families are struggling to get by in a tough economy — an economy that went south because of the banking industry's unregulated excesses. There is no need for you to threaten your customers with higher fees
when you and your bank are already making money hand-over-fist. And
there is no need to make such threats in response to reform that simply
tries to spare consumers from bearing the cost of interchange fees that
are anticompetitive and unreasonably high...In the coming weeks I am confident the Fed will produce a reasonable set of reforms that will enhance the efficiency, competitiveness and fairness of the debit system. This will neither be "counterproductive" nor "idiotic." It will be good news for all Americans." Poor Dick apparently does not know that you don't call out Jamie's BS - it only leads to exponential escalation in the M.A.D. doctrine until Jamie finally blows his top and threatens the world with an extinction level event if the ROI for his "shareholders" does not grow by at least 100% Y/Y? But at least this response does set the precedent that someone voicing an opinion contrary to that of JP Morgan does not lead to a horde of satanic demons flying out of a hole in the ground and dragging the offender deep into the bosom of Hades.
Presenting John Paulson's Complete Les Echos Interview In Which He Is Bearish On Housing, Bullish On GoldSubmitted by Tyler Durden on 04/13/2011 - 17:47
Two days ago John Paulson had an extended interview with Les Echos which however received little coverage in the US, supposedly since the interview was in French, and also because it was behind a paywall. Since the interview does provide some incremental perspectives by Paulson, it is useful to recreate it in its entirety. Specifically, Paulson is now far more bearish on US housing, blaming it on FrankenDodd, and he continues to be as bullish as ever on gold. To wit: "Over time, the price of gold will rise in proportion to the creation of paper dollars. In an inflationary environment where the demand for protection increases, the price of gold can rise even further. Historically, gold has always been a safe haven against inflation and a safe haven in times of political instability. Today we face both risks." As for whether or not we will have QE3: Paulson is not the guy to ask. He is as confused as the Fed presidents.
Remember when back on December 1, Goldman's Jan Hatzius issued its "revolutionary" bullish economy report which contained the following line "This outlook represents a fundamental shift in the thinking that has governed our forecast for at least the last five years" (and which was appropriately ridiculed by ZH :"This is unfortunate. Jan Hatzius used to have credibility"), starting a frenzy across Wall Street when one after another the econolemmings confirmed that bubble mania is alive and well, desperate to hike their own irrelevant GDP numbers as quickly as possible? After all Goldman had just given them the green light to do so. That the hike was based on something as transitory as a payroll tax fiscal stimulus and an ongoing (and allegedly soon ending) monetary stimulus in the form of QE2 was irrelevant: the Russell 2000 was up, meaning the economy was improving. Well, Jan redeemed himself realizing once again first, ahead of the crowd of idiots, that everything is about to go to hell, by downgrading Q1 GDP ahead of everyone else (naturally to be followed by the stampeding herd of lemmings - here's looking at you Joe LaVorgna and whoever the Barclays economist is, if they can even afford one - once again). But anyway since the first sentence was a question, if the answer is no, below we recreate the history of Q1 GDP forecasts by Wall Street's intellectual brigade. We will not point out the roundtrip, or put into question the relevance of the "economist" occupation on Wall Street. It is rather self-explanatory.
Warning: people on blood pressure medication are urged not to read this.
Yesterday the media had a field day when it was uncovered that the hard fought $38 billion in budget "cuts" which almost caused America to shut down were in reality $14 billion. We, thus, can't wait to find out what the response will be when it is uncovered that the actual cuts were... $353 million. Yes: the ongoing functioning of the government was a pawn in a soap opera whose benefit to the US debt is $353 million, or about what Goldman's trading desk makes in less than one day.
The president has released a budget proposal that goes beyond his budget proposal for fiscal year (FY) 2012. The most important new items are a “debt trigger” that would result in across-the-board cuts in spending and tax credits/deductions if debt/GDP goals are not reached, additional reduction in defense and non-defense discretionary spending and an endorsement of additional entitlement reductions. In most cases, the proposal outlines savings only at a high level.
Contrary To Previous Lies, Greece May Not Be Able To Access Capital Markets After All; Likely To See 50% Creditor HaircutsSubmitted by Tyler Durden on 04/13/2011 - 14:48
Following the just completed teleprompted preaching of concentrated, yet inverse, truthiness, we find that yet another bankrupt country has in fact been lying about its economic prospects. Following the recent stunning disclosure out of Portugal that contrary to constat promises to the contrary the country was in fact, broke, now we get another admission, this time from a country already bankrupt. Per the FT: "Greece needs time to convince international investors about its reform programme and may not be able to return to financial markets next year as planned, its finance minister has admitted. Greece’s budget plans are fully funded this year but Athens will have to raise between €25bn-€30bn on financial markets in 2012 – a step that would mark the first stage of its international rehabilitation. But Mr Papaconstantinou suggested that goal was in doubt and the timetable would not become clearer until an EU-IMF agreement had been struck for Portugal, the latest victim in the eurozone debt crisis. “A judgment cannot be made before the summer and before Portugal closes its deal,” he said." So now it is trendy for one broke country to bash another broke country? In retrospect Greece should have a right of first refusal of bailout funding: after all it first (was forced to) disclose its bankruptcy. Surely there should be some brownie points for that. But all this may well be moot: Germany is now openly saying the need for a Greek restructuring is coming. Which means that senior creditor haircuts (supposedly up to 50-60%) are imminent.
Two years after Obama promised to cut the budget in half by the end of his first term (it appears he was confused by math symbols: he meant divide by half), here he is again, reading from the teleprompter, and making a bunch of senseless promises that have no chance in hell of coming true. Most notably, Obama will promise to cut $4 trillion over the next decade. Of course since by $2020 the budget deficit will be measured in quadrillions, a $4 trillion cut out of $X quadrillion is actually perfectly feasible. Which is why we take back everything we said: Obama will absolutely come through on his promise.
We haven't read the whole thing. We probably won't. In essence banks promise to never engage in robosigning. Atualy monetary penalty - none! With every bank signing this form of agreement, the administration can again say all is well, and people can go back to purchasing mortgages whose notes are forever lost in the black hole that is multi-trillion bank fraud. But don't worry: they promise to never do it again.
The Treasury just sold $21 billion in a 10 Year reopening (9 year 10 months), at a high yield of 3.494%, just below last month's 3.499%. Overall the auction turned out weak pricing outside of the when issued, confirming that the butterfly-ES correlation (which is primarily driven by the 10 Year) is working. And just as the market dipped into the auction the natural response would be a pick up following the placement. The internals were weak: Primary Dealers were forced to take down more than half (51.7%) of the auction (with every intention to flip to the Fed in a week or so), the highest Primary Dealer takedown since February 2010. In return, Indirect Bidder interest slumped to 42.4%, the weakest showing since October of last year, and the balance, or 5.9% was filled by Directs. The low Bid To Cover completed the weak picture, coming at 3.13, the lowest since December, but in line with a one year average. More importantly, with this $21 billion and yesterday's $32 billion, US debt is now $53 billion higher than the unsettled total disclosed yesterday of $14.268, or $14.321. This is far above the debt limit. It also means that the debt actually subject to the limit is now $14.269 billion, or $25 billion below the ceiling.
And keep in mind there is another $13 billion in 30 Years to be
auctioned off tomorrow (granted offset by $19.2) billion in maturities.
Will the Treasury last through July without a debt ceiling increase at a
rate of issuing $125 billion in net debt per month? Not a chance in
In about an hour, the Teleprompter in Chief will once again address a nation on the topic of the exploding US deficit, which he can only hope has the attention span of an HFT algorithm, and has forgotten his proclamations on the same issue from early 2009. Among the things Obama will discuss:
Sets a goal of reducing US deficit by USD 4trl in 12 years or less, according to a congressional source Implements a deficit plan would curb deficits to 2.5% of GDP in 2015, 2% toward end of decade according to a congressional source Wants US debt on "declining path", enforced by "debt failsafe" trigger of broad cuts, according to a congressional source Seeks $770bln in savings by 2023 in cuts to non-security discretionary spending according to a congressional source
Sets a goal of reducing US deficit by USD 4trl in 12 years or less, according to a congressional source
Implements a deficit plan would curb deficits to 2.5% of GDP in 2015, 2% toward end of decade according to a congressional source
Wants US debt on "declining path", enforced by "debt failsafe" trigger of broad cuts, according to a congressional source
Seeks $770bln in savings by 2023 in cuts to non-security discretionary spending according to a congressional source
Good luck with that. In the meantime... a clip from Obama circa February 2009 on where Obama saw the budget by the end of 2012. That did not...quite... work... out.
On the headline JP Morgan (JPM) beat with $1.28 versus estimates of $1.15 on EPS. Comparing Q1 2011 to Q1 2010 net revenues is down 8.8% while EPS is up 72%. Sounds OK unless you ask two very simple questions (1) what is the direction of income before provisions for loan losses and (2) what is the direction of asset prices... Time will only tell what the real answer to question 2 is regarding the direction of asset prices. Right now it appears the trend is lower. If in fact that is the case then the deteriorating income of JPM and other banks will not be able to absorb rising provisions for loan losses. The bank trade really comes down to a bet on housing. So beyond FASB accounting tricks, government intervention and regulatory slaps on the wrist, the free market will have the final say on the future of the banking sector.
With GC-Repo Carry Over And FX Carry In Doubt, Are Traders Forced To Ride The Curve For Trade Funding (Butterfly Spread)Submitted by Tyler Durden on 04/13/2011 - 11:52
Following ongoing disruptions in FX funding trades (and following last month's JPY fiasco we doubt anyone will bet all of the "Other People's Money" on this previously sure-thing trade), and the ongoing devastation in the GC-IOER (repo-reserve), which today printed at a whopping 2 bps (a 100% surge from yesterday!), a new carry trade appears to have emerged, one which was all the rage about this time last year again: the 2s10s30s butterfly. As the second chart shows, the R2 between the butterfly and ES is now back to almost 1.000. In other words, the stock market now appears to be correlating very closely to the relative underperformance of the 10 year compared to the 2 and 30 Year tails. With today's 10 Year auction imminent which will likely see a sell off into the auction of that specific spot, following a reversion post the auction, we may see an inverse move in stocks pre and post 1 pm event.
David Stockman concludes his two part series on Crony Capitalism (part one here) with this scathing take down of the Federal Reserve. Hopefully this is nothing new to anyone at this point... "The destructive result of the Federal Reserve’s earlier housing and consumer credit bubble became the excuse for embracing a destructive zero interest rate policy which is self-evidently fueling even more destruction. This destruction is namely, the exploitation of middle class savers; the current severe food and energy squeeze on lower income households; the illusion in Washington that Uncle Sam can comfortably manage $14 trillion in debt because the interest carry is close enough to zero for government purposes; and the next round of bursting bubbles building up among the risk asset classes... So in the present circumstances, ZIRP and QE2 amount to a monetary Hail Mary. There is no monetary tradition whatsoever that says the way back to U.S. economic health and sustainable growth is through herding Grandma into junk bonds and speculators into the Russell 2000."
Spanish Situation Worse Than Expected: China Rumored To Inject $13 Billion Directly Into Spanish BanksSubmitted by Tyler Durden on 04/13/2011 - 11:00
As if holding $36 billion (€25 billion) in Spanish sovereign debt wasn't enough, China now appears to be going all in as Spain's white knight. Reuters reports that in addition to keep the government solvent, China is now going direct to Spain's troubled banking system. "Chinese investors including the country's sovereign wealth fund may inject $13 billion into Spanish banks, a government source said on Wednesday after Spain's premier met financial authorities in Beijing." Then again, recall that it was Portugal which relied last exclusively on China as a last chance rescuer. Which is why we disagree completely with this statement: ""If this is true it is positive for the market. If CITIC or another Chinese vehicle invests 9 billion euros that would represent around 5 percent of the equity in the Spanish banking system," said a London-based analyst who asked not to be named." Uh, no. It means that the market, like a good Pavlovian dog, will now start dumping Spanish paper in expectations of yet another bailout. And the more Spain is forced to buy to preserve it cross-linked investments in the PIIGS, the more dumping. After all such is life in centrally planned bizarro world.
Banks To Get Away Scott-Free Again? Mass Fraudclosure Settlement To Be Announced Today Without Financial PenaltiesSubmitted by Tyler Durden on 04/13/2011 - 10:19
As we noted earlier, JPM recorded $650 million in costs to "foreclosure-related matters" read legal costs associated with Robosigning (and if JPM is over half a billion, BofA legal invoices are certainly in 9 digit territory by now). Obviously, this is a situation that has to be resolved as USSA kleptocracy can not be forced to pay for prior (and ongoing) transgressions. Which is why we were not surprised to learn that "Bank regulators plan to announce settlements later on Wednesday with the largest lenders over allegations of shoddy foreclosure practices, but the pacts will not include financial penalties." All those who had been hoping for an equitable judicial treatment for criminal bank actions are urged to bottle their righteous indignation and stow it away (at this rate of inflation indignation will be worth 50% more in a mere 3 months). "The Office of the Comptroller of the Currency, the Federal Reserve and the Office of Thrift Supervision have spent the past few days completing the settlements with some of the largest U.S. banks, including Bank of America Corp, Wells Fargo & Co, JPMorgan Chase and Citigroup Inc. The pacts would resolve only part of a large probe involving a group of 50 state attorneys general and about a dozen federal agencies." But don't worry banks, won't actually have to part with even one dollar: "JPMorgan Chase & Co Chief Executive Officer Jamie Dimon said on an earnings conference call that the regulators would release consent orders that would make the banks address weaknesses in foreclosure affidavits. Fines will probably come later, he said." Probably. Although don't hold your breath.