America's toothless regulators strike again. JPM, which recently got away virtually scott free with an identical settlement on CDO security fraud that dragged Goldman stock for months back in 2010, has once again exposed its "most favored fraud" status with America's regulators after Reuters announced that the firm will settle a charges of a 6 year long bid-rigging fraud in municipal securities with the SEC... for the princely sum of $35 million.
There has been much discussion lately about whether the US middle class is being unfairly penalized and carrying the burden of a tax regime that benefits the uber-wealthy. While that may certainly be the case on some statistical basis, especially if a literal handful of people account for the bulk of the income, thus skewing the median and the mean representation (a topic extensively analyzed in Nassim Taleb's Black Swan), below we present two charts that come straight from the IRS which show that talk of "no shared sacrifice" is largely unfounded. The first chart looks at the effective tax rate by income cohort; the second, and far more dramatic hockeystick chart, demonstrates the number of people paying no income tax. The results are, to say the least, quite surprising.
Last week it was discovered that the means by which various big banks are dealing with the Option ARM cliff is by enforcing outright mortgage debt forgiveness, in some cases as large as 50% of the total principal. Which is why it should come as no surprise that the administration, in dealing with the lack of an unemployment cliff, has decided to extend foreclosure-free living for unemployed homeowners from a few months to a year. From USA Today: "The administration today will announce that two programs providing unemployed homeowners a few months' forbearance on their mortgages will be extended to 12 months, said three administration officials speaking anonymously because the program has not been announced. Thousands of homeowners could benefit from the additional time, although not all jobless homeowners will be eligible. The action is being taken as part of the administration's effort to help prevent foreclosures while unemployment remains above 9% and the economy struggles to rebound." What would be great if in addition to such openly socialist policies the administration would enforce the implementation of sinking funds for said unemployed workers, who instead of taking unemployment benefits from the government and converting it into less than edible iPads, would actually set aside money for that eventual mortgage payment. Of course that will never happen: after all why redirect freshly issued fiat from being recycled into the economy and do the responsible thing when nobody in America expects to pay their mortgage payments ever again. And some wonder why retail sales in June came as blistering as they did. Simple: when the US consumer no longer has to spend any money on the biggest traditional use of capital, housing, the alternative is everything else. And for those attempting to figure out just how this is deflationary (for everything but housing of course, but that's one deflation that will only hit the pocket of Uncle Sam), we would kindly request an explanation as well when someone has an answer.
As An Excise-Taxing Africa Now Demands A Piece Of The Commodity Pie, Commodity Prices Are Set To JumpSubmitted by Tyler Durden on 07/07/2011 - 09:16
With insolvent governments across the world preparing to tax the living daylight out of each and every profitable "externality", also known as any industry with abnormal profits, it was only a matter of time before the perpetual laggard, Africa, caught on, only in this case it is implementing "excise taxes" first. Bloomberg reports: "African countries are moving to grab a bigger slice of their commodity wealth as rivalry for the world’s remaining reserves of iron ore, uranium and gold sap the bargaining power of companies such as Anglo American Plc. Tanzania’s proposal to study a so-called super tax on mines sent African Barrick Gold Plc, the East African nation’s biggest producer of the metal, to a record low in June. Ghana, Namibia, Guinea, Uganda, Mozambique and Gabon also are acting to increase their share of profits from mining." Translation: as the OPEC oil cartel dies with Saudi Arabia unable to balance its fealty to the US, and specifically Obama's reelection chances, with its requirement to act as a monopolist, another one is born, and one whose cartel behavior will see commodity prices surge as soon as the market realizes that producers are forced to pass on incremental taxes to end consumers. Ironically, what will be the West's loss, is about to become a windfall for the developing economies who are doing all they can to stock up their own commodity reserves, further shifting the balance of power from the US to emerging markets.
The Governing Council of the European Central Bank (ECB) has decided to suspend the application of the minimum credit rating threshold in the collateral eligibility requirements for the purposes of the Eurosystem’s credit operations in the case of marketable debt instruments issued or guaranteed by the Portuguese government. This suspension will be maintained until further notice... The suspension applies to all outstanding and new marketable debt instruments issued or guaranteed by the Portuguese government.
And while Trichet is blatantly lying and making stuff up as he goes along, on line two we have Pimco's Mohamed El-Erian who has taken some time away from his daily blogging activity and is conducting a live Q&A on Reuters right now. Readers can follow his thoughts, which are hardly anything new as he has made his opinion known each and every day in at least one media venue, live at the link below.
A stunner in the JCT press conference, who just announced that the ECB is willing to accept any junk that comes its way. Specifically he said that the ECB has decided to suspend a rating requirement for Portuguese collateral, and that the ECB will shortly issue a press release on the matter. Obviously the bank is now making stuff up as it comes alone. He also added that the suspension will be maintained until further notice. Expect this move to affect Italian, SPanish and all other insolvent country debt shortly as it becomes all too clear that the ECB will do everything in its power to give out cash against insolvent paper. And now you know what Europe's QE looks like.
Those who wonder what JC Trichet has to say about the future of ECB monetary policy can do so below. So far the euro is not happy, in line with expectations that future rate hikes now appear very much in doubt.
Well the BLS reported Initial Claims that came above 400K for the 13th consecutive week, printing at 418K, in line with expectations of 420K (and a miss as this number will be revised to 420K or higher next week). Continuing claims came at 3,681K on expectations of 3,700K, with the prior number revised higher from 3,702K to 3,724K. As predicted last week "Both numbers this week will be revised higher next week, which will bring the rolling average far higher." In other words, post revision, today's claims data will have been a miss. Which then begs the question, considering the far better ADP number, whether employers have taken a cue from HFT machines and are now hiring and firing workers at an unseen before pace. In other news, those on EUC and Extended benefits both dropped by over 44K in the week ended June 18.
ADP has released a June private payrolls number of 157K, far above expectations of 70K, and up from a downward revised 36K previously. From the release: "Employment in the U.S. nonfarm private business sector rose 157,000 from May to June on a seasonally adjusted basis, according to the latest ADP National Employment Report released today. The estimated advance in employment from April to May was revised down, but only slightly, to 36,000 from the initially reported 38,000. Today’s ADP National Employment Report estimates employment in the service-providing sector rose by 130,000 in June, nearly three times faster than in May, marking 18 consecutive months of employment gains. Employment in the goods-producing sector rose 27,000 in June, more than reversing the decline of 10,000 in May. Manufacturing employment rose 24,000 in June, which has seen growth in seven of the past eight months." Yet despite a supposed pick up in marginally weak employment sectors, both construction and financial jobs dropped once again in June, declining by 4,000 and 3,000, respectively. The one hopeful sign is that the bulk of hiring supposedly occured at small businesses (under 500 workers): "Employment among large businesses, defined as those with 500 or more workers, increased by 10,000, while employment among medium-size businesses, defined as those with between 50 and 499 workers, increased by 59,000. Employment for small businesses, defined as those with fewer than 50 workers, rose 88,000 in June" ADP concludes: "These figures are above the consensus forecast for today’s report and for Friday’s jobs number from the BLS. Payroll employment growth at this pace usually implies a steady unemployment rate, perhaps even a modest decline." The only question now is whether we are back to the old regime when the ADP consistently beats NFP numbers and has absolutely no correlation with what the BLS reports.
With the ECB doing largely as expected, and the EUR already seeing a modest episode of selling the news, the only major news out of Europe will be the scanning for "strong vigilance" keywords out of Trichet shortly, although it is almost certain that the central bank head will tone down further rate hike expectations dramatically, unless he wishes all those Option ARMs in Spain to push every Caja beyond the bring of insolvency. So going back to the US, with the ADP number the most important economic release next, here is Citi's Steven Englander on how to trade both possible outcomes of this datapoint.
The fully priced-in rate hike has come and gone, with the ECB raising the benchmark interest rate from 1.25% to 1.50%. Now the question is what happens next: at 8:30 am is the Trichet press conference which we will carry live. Everyone will wonder if this is the end of the hiking cycle, which it almost certainly is as any more hiking will cause a full blown collapse within the PIIGS countries. If so, look for the market to promptly sell the news.
UK Royal Mint Silver Production Surges 100% - Sovereign Edward Supply Tight But Bullion Premiums LowSubmitted by Tyler Durden on 07/07/2011 - 06:42
The U.K.’s Royal Mint said that first-half silver production in 2011 doubled, while gold production climbed 8.9% over 2010 levels. The Royal Mint, established in the 13th century, used 36,219 ounces of gold compared with 33,266 ounces the previous year, according to data obtained by Bloomberg News under a Freedom of Information Act request. Silver use more than doubled to 324,421 ounces in the period. The Royal Mint makes Britannia silver bullion coins and other collector silver coins. 324,421 ounces of silver at today’s prices ($36/oz) would be worth less than $12 million dollars. Mere chump change to many wealth investors and savers concerned about their investments and savings.
We get two non-core employment indicators today, with both the ADP and the Initial Claims numbers coming out in an hour. Last month ADP for the first time in a while predicted the NFP release with a high degree of confidence, although with the bulk of layoff now concentrated at the government level it will likely not disclose the full picture.