Testimony

And Keystone will only drive prices HIGHER

We skipped the first part of today's hearing by the Ron Paul-chaired Domestic Monetary Policy and Technology Subcommittee titled “Improving the Federal Reserve System: Examining Legislation to Reform the Fed and Other Alternatives” as one of the two panelists was Barney Frank, which immediately meant it would be a complete and utter waste of time, and everyone would walk away far dumber from it, with god likely not having mercy on anyone's soul. The second part however promises to be far more interesting featuring such names as John Taylor (not the FX Concepts Taylor or the musician), Peter Klein, James Galbraith and Alice Rivlin. While everyone knows wha has to be done about the Fed, the likelihood that this will happen before the Big Reset is zero, but at least people can talk, dream and speculate. Watch the live webcast for more of the latter.

Krugmann fails to address even a single one of the arguments forwarded by Spitznagel. This is no surprise, as he has often demonstrated he does not even understand the arguments of the Austrians and moreover has frequently shown that his style of debate consists largely of attempts to knock down straw men.  After appraising us of his economic ignorance (see the idea that time preferences can actually 'go negative' implied by his argument on the natural interest rate above), he finally closes a truly Orwellian screed by claiming that everybody who is critical of the Fed and the financial elite is guilty of being 'Orwellian'. As we often say, you really couldn't make this up.

The always-outspoken Doug Casey addresses a broader view of taxation and its costs to both individuals and society in general in this interview with Louis James. The Taxman can and will come for you, no matter how great or small the amount of tax he expects to extract from you. The IRS can impound your assets, take your computers, freeze your accounts, and make life just about impossible for you, while you struggle to defend yourself against their claims and keep the rest of your life going. But people should not just bow down and lick the boots of our masters. They can and should do everything they can to pay as little in taxes as possible. This is an ethical imperative; we must starve the beast.

• First Japan now... Australia Ready to Help IMF (WSJ)
• "Not if, but when" for Spanish bailout, experts believe (Reuters)
• Spain’s Surging Bad Loans Cast New Doubts on Bank Cleanup (Bloomberg)
• Spain weighs financing options (FT)
• Spanish Banks Gorging on Sovereign Bonds Shifts Risk to Taxpayer (Bloomberg)
• Spain and Italy Bank on Banks (WSJ)
• Chesapeake CEO took out $1.1 billion in unreported loans (Reuters)
• China preparing to roll out OTC equity market – regulator (Reuters)
• Angry North Korea threatens retaliation, nuclear test expected (Reuters)
• North Korea Breaks Off Nuclear Accord as Food Aid Halted (Bloomberg)

Addressing his perception of lessons learned from the financial crisis, Ben Bernanke is speaking this afternoon on poor risk management and shadow banking vulnerabilities - all of which remain obviously as we continue to draw attention to. However, more worrisome for the junkies is the total lack of QE3 chatter in his speech. While he does note the words 'collateral' and 'repo' the proximity of the words 'Shadow, Institutions, & Vulnerabilities' are awkwardly close.

Deconstructing Corzine's lawyered up rat speak.

Bernanke has laid the groundwork for the next massive dislocation.

Today brings the release of the Minutes of the March 13th FOMC meeting. As Steven Englander of Citi notes today, since the tone of the Minutes reflects the breadth of opinion among FOMC members the risk is that it reads somewhat more hawkish than recent comments by Chairman Bernanke. Persistent hawkishness from other FOMC members could foster the perception that Bernanke will face greater resistance in any push to introduce additional accommodation which could have a negative impact on risk appetite and lend support to USD. This would be particularly true if mentions of possible further easing by FOMC doves are few and far between. Given that interest rate expectations have declined over the past two weeks since the series of speeches by Chairman Bernanke, there does appear to be some room for investors to price in more Fed hawkishness. As reflected in implied yields for December 2013 eurodollar futures, interest rate expectations have dropped nearly 20 bps since March 20th. However, this drop in yields only reverses part of the rise seen in the wake of the Chairman’s earlier Senate testimony and the release of the FOMC statement, so ultimately scope for a rebound should not be open ended. Coupled with the fact that Bernanke’s comments are more recent than March FOMC meeting, this convinces us that risk return in chasing any bout of USD strength upon the release is unattractive.

In the US, we instead chose to undermine capitalism and the economic cycle. In the process we’ve undermined trust in the system. Until this is remedied there will be not REAL recovery.

• Obama budget defeated 414-0 (Washington Times) yes, the Democrats too...
• German Central Banker: ECB Loans Only Buy Time (AP)
• Baku grants Israel use of its air bases (Jerusalem Times)
• Japan May Understate Deflation, Hampering BOJ, Economist Says (Bloomberg)
• BRICS flay West over IMF reform, monetary policy (Reuters)
• Five Portugal Lenders Downgraded by Moody’s (Bloomberg)
• SEC Registration Captures More Hedge Fund Advisers (Bloomberg)
• EU Nears One-Year Boost in Rescue Fund to $1.3 Trillion (Bloomberg)
• Consumers plot emergency oil release as Saudi decries high prices (Reuters)
• Japan Plans to Draft Stopgap Budget for First Time in 14 Years (Bloomberg)

When Wells Fargo CEO John Stumpf sleeps, he dreams -- like all good bankers -- about numbers.  He probably doesn't dream about the number 600 -- the number of foreclosure packages signed each day by his robosigners.  He probably doesn't dream about 14,420 -- the number of conveyance claims fraudulently submitted to HUD in exchange for $1.7 billion from the FHA [Inspector General report.] And, he almost certainly doesn't dream about his share of laughably small $25 billion penalty he and his fellow bankers might pay to slough off legal liability for the millions of Americans they've helped make homeless (don't know why they're bellyaching...they're all getting $2,000!) No, I imagine the number he fixates on is 35 -- the third rail around which his stock seems to go into spasms every time it gets close.   I'm exaggerating, of course; it's only happened three of the last four times since November 2007.  The other time, in September '08, the stock soared right through 35 to nearly 45 -- before plunging to 7.80 six months later. Stumpf might be dreaming about 35 a lot this week, as the stock's edging toward that buzzing rail yet again.  And, darn it, did the SEC have to pick this week to file that subpoena to compel him to hand over the documents he promised in regards to a $60 billion fraud investigation?  Now, with earnings coming up in a couple of weeks?

Today at 2 PM, the House Financial Services Committee will hold its third hearing (and the fifth overall) on the ever more confounding topic of MF Global, its bankruptcy, and its vaporized client funds, which amount to about $1.6 billion at last check. And while Jon Corzine will not be there, virtually everyone else from the firm who can promise that said vaporitzation of funds was merely a softward glitch and not the fault of anyone in particular, will be present, from the General Counsel, to the CFO, to the Deputy General Counsel of JPMorgan, all the way to Edith O'Brien, assistant treasurer of MF Global, who is expected to plead the Fifth. One wonders why if there is nothing to hide, but that is the topic of another discussion. And as exposed last week by the WSJ, this hearing will be particularly interesting as now it has been made clear that Corzine specifically gave the order to transfer funds to JPM's account. As NJ.com summarizes: "Per JC’s direct instructions." This line, contained in an email that an MF Global finance official sent to explain a $200 million transfer to JPMorgan Chase from an MF Global account containing customer funds, will be a focal point of a congressional hearing today into the futures firm’s collapse. The email, disclosed in a congressional memo circulated Friday, has raised questions about whether the former governor and CEO of MF Global knew customer money was being used to plug holes in the firm’s finances as it plunged into bankruptcy during the last week of October. As much as $1.6 billion of client funds has gone missing, according to a trustee liquidating the futures firm."

A warning by the SEC in mid-March 2011 regarding repo-to-maturity trades suggests otherwise.  

Another deal gets dissolved. But threats abound. And it's only going to get worse.