Rebel Traders

Elizabeth Warren has penned an op-ed for the Wall Street Journal, and she holds nothing back.

[…]Banks and brokers have sold deceptive mortgages for more than a decade. Financial wizards made billions by packaging and repackaging those loans into securities. And federal regulators played the role of lookout at a bank robbery, holding back anyone who tried to stop the massive looting from middle-class families. When they weren’t selling deceptive mortgages, Wall Street invented new credit card tricks and clever overdraft fees.

In October 2008, when all the risks accumulated and the economy went into a tailspin, Wall Street CEOs squandered what little trust was left when they accepted taxpayer bailouts. As the economy stabilized and it seemed like we would change the rules that got us into this crisis—including the rules that let big banks trick their customers for so many years—it looked like things might come out all right.

Now, a year later, President Obama’s proposals for reform are bottled up in the Senate. The same Wall Street CEOs who brought the economy to its knees have spent more than a year and hundreds of millions of dollars furiously lobbying Washington to kill the president’s proposal for a Consumer Financial Protection Agency (CFPA). […]

[…] The consumer agency is a watchdog that would root out gimmicks and traps and slim down paperwork, giving families a fighting chance to hang on to some of their money. So far, Wall Street CEOs seem determined to stop any kind of watchdog. They seem to think that they can run their businesses forever without our trust. This is a bad calculation.

It’s a bad calculation because shareholders suffer enormously from the long-term cost of the boom-and- bust cycles that accompany a poorly regulated market. J.P. Morgan CEO Jamie Dimon recently explained this brave new world, saying that crises should be expected "every five to seven years."

He is wrong. New laws that came out of the Great Depression ended 150 years of boom-and-bust cycles and gave us 50 years with virtually no financial meltdowns. The stability ended as we dismantled those laws and failed to replace them with new laws that reflected modern business practices. […]

[…]When the history of the Great Recession is written, they can be singled out as the bonus babies who were so short-sighted that they put the economy at risk and contributed to the destruction of their own companies. Or they can acknowledge how Americans’ trust has been lost and take the first steps to earn it back.

Read the full article at the WSJ

Marc Faber has blunt words for Tim Geithner and the United States. If the nation was a corporation, the credit rating would be junk.

Market summary video for February 8, 2010 is now available on the videos page.

Tuesday Schedule:

10:00 Dec Wholesale Inventories (last 1.5%), Mexico Jan Consumer Prices

13:00 US Treasury’s $40B 3-yr note auction

16:30 API Crude Oil/Gasoline/Distillate Inventories

Earnings:

Before the Open: ACM, AGCO, AGU, AHCI, ALLT, ANR, ACLI, ATRO, BIIB, BJS, CAM, CE, CNC, CHD, KO, CTSH, CVH, CYNO, ENER, IT, GET, IACI, IFF, KVHI, LCAV, MLM, TAP, NOOF, NYX, PCH, PHM, RTIX, RBCN, TIN, GTS, VSH, WMG, ZBRA

After the Close: ATAC, AGAM, AFG, ASEI, AHL, BIDU, CFN, CERN, EXBD, CXW, DIOD, DNEX, DSCM, EOG, GIL, GCOM, HNI, PODD, KFRC, LTRE, LGF, NTGR, OPEN, RNR, RUSHA, SB, TCO, UDR, ULTI, USNA, DIS, WWWW, XL

Weekend market summary is now available for viewing on the ‘market update videos’ page.

(sorry for the late video folks, over 2 feet of snow here kind of made a mess of schedules)

Monday Events:

no significant economic data releases

Earnings:

Before the Open: AMRI, AGNC, BWP, CGA, CHDX, CNA, CVS, GWR, HAS, HS, LFUS, L, LO, MCY, NDAQ, NVE, SIRO, VTNC

After the Close: ADCT, ANDE, ATML, AXS, BWY, CPT, CRL, CMP, CCRT, CRK, CUZ, CUTR, ERTS, ECPG, ESLR, FWRD, HAR, HIG, HIMX, HMN, LNCR, LNC, NUAN, OTTR, OMI, PKY, PIKE, PPS, PPDI, PFG, QGEN, RENT, SKH, SWI, SRX, TMRK, TWTC, VECO, VMC, WRB, WCN, ZOLT

The action in the market today was driven mostly by the technical’s. That is, the end of day reversal was upon the channel support discussed over the past two days in the market videos.

On the hourly chart of the S&P 500 E-Mini’s we discussed the channel (green lines), and today that channel offered support towards the end of the day. Today’s rally into the close appears to be simply a technical bounce and nothing more.

I will cover this in much greater detail in the weekend video.

(click chart image for larger view)

The unemployment rate drops to 9.7%. But, the BLS changed the survey calculations in this latest unemployment report, and had it not been for the ‘new’ changes the unemployment rate is 10.6%.

JAN UNEMPLOYMENT RATE: 9.7% V 10.0%E (Note 10.6% without changes in survey)

- Note: data subject to changes due to new calculation of Unemployment using a household survey, which is said to capture small business data better than the employment survey.

Revisions to Establishment Survey Data

In accordance with annual practice, the establishment survey data have been
revised to reflect comprehensive universe counts of payroll jobs, or benchmarks.
These counts are derived principally from unemployment insurance tax records
for March 2009. As a result of the benchmark process, all data series were
subject to revision from April 2008 forward, the time period since the last
benchmark was established. In addition, with this release, the seasonally
adjusted establishment survey data from January 2005 forward were subject to
revision due to the introduction of updated seasonal adjustment factors.

Table A presents revised total nonfarm employment data on a seasonally adjust-
ed basis for January through December 2009. The revised data for April 2009
forward incorporate the effect of applying the rate of change measured by the
sample to the new benchmark level, as well as updated net business birth/death
model adjustments and new seasonal adjustment factors. The November and
December 2009 revisions also reflect the routine incorporation of additional
sample receipts into the November final and December second preliminary
estimates. The total nonfarm employment level for March 2009 was revised down-
ward by 902,000 (930,000 on a seasonally adjusted basis), or 0.7 percent. The
previously published level for December 2009 was revised downward 1,390,000
(1,363,000 on a seasonally adjusted basis).[…]

Effective with data for January 2010, updated population estimates have been
used in the household survey. Population estimates for the household survey
are developed by the U.S. Census Bureau. Each year, the Census Bureau updates
the estimates to reflect new information and assumptions about the growth of
the population during the decade. The change in population reflected in the
new estimates results primarily from adjustments for net international migra-
tion, updated vital statistics and other information, and some methodological
changes in the estimation process.

We did get the expected huge downward revisions (902,000 additional job losses) but the BLS has once again changed the calculation methodology for this report. Makes it very difficult to compare apples to apples.

The closest I can come to making an equal comparison (before the new calculations) would have the unemployment rate at 10.6%

Stock market summary video for February 4th is now available for viewing on the ‘market update videos’ page.

Friday Schedule:

08:30 January Nonfarm Payrolls (last -85K), Jan Unemployment Rate (last 10.0%), Jan Manufacturing Payrolls (last -27K), Jan Average Hourly Earnings (last m/m 0.2%, y/y 2.2%)

12:00 Treasury Sec Geithner to attend G7 meeting

15:00 December Consumer Credit (last -$17.5B)

Earnings:

Before the Open: AET, AYE, AXL, AIV, BZH, BPO, BRKS, SUR, LRN, KELYA, MAG, MD, NNN, PPL, PBH, SXT, SPG, SEP, TE, TSN, VVI, WY, YRCW

Bank of America charged with civil fraud

Ney York attorney general Andrew Cuomo filed civil securities fraud charges against former Bank of America CEO Ken Lewis along with the former CFO.

The charges allege that they (Ken Lewis and the CFO) decided not to disclose mounting losses at Merrill Lynch before getting the approval from the shareholders to acquire the firm in the shotgun wedding. Separately, the Securities and Exchange Commission (SEC) reached a deal to settle allegations of misleading investors and Bank of America will pay penalties of $150 million. The new settlement still requires a judge’s approval.

The new charges brought on by NY Attorney General are civil fraud charges. If found guilty, then former CEO Ken Lewis and the CFO may face more than just ‘a fine’

Remember the MOVE YOUR MONEY movement which I strongly support.

The full complaint can be read below:

Andrew Cuomo’s Lawsuit Against Bank of America and Ken Lewis

Harrisburg, the capital of Pennsylvania mulls Chapter 9 bankruptcy protection

The capital of Pennsylvania is debating if a chapter 9 bankruptcy filing is the right thing to do. The city is also looking at raising taxes and selling government assets. Harrisburg faces $68 million in debt payments due this year.

Every option, including tax and fee increases, bankruptcy and a state takeover through Pennsylvania’s Act 47 municipal oversight program will be considered, said Susan Brown-Wilson, chairwoman of the Budget and Finance Committee, which began a week of hearings last night to consider a 2010 spending plan.

The $68 million in debt service payments that Harrisburg faces in connection with the construction of a waste incinerator this year is four times what the city of 47,000 expects to raise through property taxes, and $4 million more than the city’s entire proposed operating budget.

“We need to see, what does Act 47 do for us; what does bankruptcy do,” Wilson said in an interview during a break in the opening budget hearing at Harrisburg City Hall. “You have to have all of them on the table.”

Harrisburg skipped more than $3.5 million in debt-service and swap payments last year, prompting draws on reserves and back-up payments by Dauphin County, where Harrisburg is located. The county has sued the city to recover its payments. […]

[…] “There’s never been a default like this in Pennsylvania municipal history,” she said. “This is all new territory.” […] (Bloomberg)

As I have talked about over the past many months, states and local governments will continue to be stressed and facing rising budget problems. There will be more stories like this one in the coming months.

GMAC, the company that was not content with just issuing car loans, is now bleeding money from every orifice. I guess the tax payers will have to bail them out, again.

(Bloomberg) — GMAC Inc., the auto and home lender controlled by the U.S. government, posted a record quarterly net loss, driven by the declining value of mortgage assets.

The fourth-quarter loss from continuing operations was $3.9 billion, compared with profit of $7.7 billion a year earlier, Detroit-based GMAC said in a statement. GMAC’s net loss was $4.95 billion after writing down mortgage holdings. For the year, GMAC swung to a net loss of $10.3 billion from a $1.87 billion profit.[…]  (H/T Butch)

Market summary is available for viewing on the ‘market update videos’ page.

Thursday Schedule:

07:00 BoE Rate Decision

07:45 ECB Rate Decision

08:30 Preliminary Q4 Nonfarm Productivity (last 8.1%), Q4 Unit Labor Costs (last -2.5%), Initial Jobless Claims (last 470K), Continuing Claims (last 4.602M)

10:00 Dec Factory Orders (last 1.1%)

10:30 Natural Gas Inventories

Earnings:

Before the Open: ABMD, AGN, LNT, ATK, ARJ, STST, AVP, BCE, BDC, BLC, BHE, BCRX, BG, BKC, CRR, CI, CINF, CLX, CME, CNMD, DTPI, DO, UFS, ELNK, ENTG, FLO, HGG, HI, HSP, IVC, K, KNL, KLIC, LII, LZ, MA, MTRX, MMS, MDCI, MF, MSTR, MEND, MKSI, MGI, MCO, MWIV, NCR, NOC, NUS, CHUX, PENN, PAS, POL, POWI, QUIX, RAI, RSTI, RDS.A, RGLD, RTI, SBH, SLE, SNA, SNE, SE, SPR, HOT, SPH, TEN, TBL, UTEK, WBC

After the Close: ARAY, ACTL, ABCO, BMI, BEZ, BEBE, BBND, BFRM, BLKB, COGO, CNW, DNEX, DNB, EW, ESE, ESS, XIDE, FALC, FIS, FMC, HLIT, HA, ILMN, IN, LQDT, LMNX, MTD, MCHP, MCRS, MAA, MTX, MPWR, MTSC, MFLX, NFG, N, EGOV, OPWV, OPXT, PCCC, PKI, PMC, PFWD, PTEC, PBI, PWAV, RMD, SFLY, SIMG, SLH, SRCL, SFSF, SUN, SNCR, TWLL, TSYS, TTMI, VRTX

Unemployment statistics are flawed.

What have I been saying ever sine the recession began, the Bureau of Labor Statistics use of the “birth/death” model is flawed. To adjust the monthly jobs data by a number which is computed from a ‘model’ of how many businesses were created and how many closed up during any given month is simply asking for trouble in maintaining any sense of accuracy.

The main purpose of the birth/death model is an attempt to offset the jobs data by what the BLS believes to be happening in the real world, the only problem is that the model relies on assumptions. And assumptions are worthless in an economic collapse.

When the Government releases Friday’s employment report, nearly a million jobs could be erased. The change won’t show up in the monthly report. Rather, the expected drop will show up in the government’s revised job losses from April 2008 to March 2009, showing the labor market was in much worse shape than we knew at the time.[…]

Blame the birth/death model for the revision. Built on years of research, the model’s key assumption is fairly simple: most of the time jobs created at new companies make up for losses at companies that close. In October, Keith Hall, Commissioner of the Bureau of Labor Statistics, said most of the coming revision “appears to be due in part to an increase in the number of business closings,” short-circuiting the model’s assumption that deaths are offset by births.[…]

The Labor Department says there are flaws in its models and its monthly employment survey but it defends the process, saying the annual employment revisions are small and stable. […] (Source: Bloomberg)

Small and stable? I don’t think a calculation error of 800,000 to 1 million additional job losses is ‘small and stable’.

The birth/death model should be shelved, permanently.