ECB Shifts View on Bond Losses

The European Central Bank, in a sharp turnaround, has advocated imposing losses on holders of senior bonds issued by the most severely damaged Spanish savings banks, though finance ministers have for now rejected the approach, according to people familiar with discussions.

The ECB’s new position was made clear by its president, Mario Draghi, to a meeting of euro-zone finance ministers discussing a euro-zone rescue for Spain’s struggling local lenders in Brussels the evening of July 9… http://online.wsj.com/article/SB10001424052702303612804577528663115746788.html?mod=googlenews_wsj

Stocks were due for a robust rally; and JP Morgan’s finely crafted earnings provided the fuel.

There is an even more powerful rally influence on Friday than JPM’s magic earnings.

We have relentlessly noted for months that the 2012 market is closely correlating to 2011.

Last year, the early July decline hit a short-term bottom on Monday, July 18 and commenced a sharp rally that lasted for a week.  Traders will continue to play the 2011 algorithm until the trend aborts.

S&P 500 July 2011 – Monday, July 18 marked a trading low.  There was one more rally and then…

There are two other reasons for traders pouring into stocks [on thin volume] on Friday:

• Bernanke delivers his semi-annual outlook to lawmakers on Tuesday and Wednesday
• This is expiration week.

“Life is really simple, but we insist on making it complicated.” — Confucius

JP Morgan issued better (1.09) than expected earnings because once again Dimon depleted loss reserves.  JP Morgan’s profit was boosted .33 due to $2.1B of loan loss reserve depletion.

Ex-DVA, which produced .12, and all gains, JP Morgan reported earnings of .67; .76 was expected.

45 cents of JP Morgan’s 1.09 profit was accounting:12 cents from DVA, which is booking a fictitious gain because JPM’s bond prices declined due to its trading loss, and .33 from depleting loan loss reserves.

JPM restated its Q1 earnings.  It reduced profits by $459m because traders in its CIO misstated the value of their positions.   Most people ignored the transgression and coming investigation…How many times have we opined that big banks derived beaucoup profits from marks on its massive derivative holdings?

New Fraud Inquiry as JPMorgan’s Loss Mounts

The possible deceptions came to light in a regulatory filing early Friday just before the bank reported its second-quarter earnings. While the bank posted a profit of nearly $5 billion despite the trading losses of $4.4 billion for the quarter, some analysts and regulators zeroed in on the valuation of the trades.

“If traders misrepresented a fact with the intent to defraud, they can be subject to criminal charges,” said Alan R. Bromberg, a securities law expert at Southern Methodist University…

The Securities and Exchange Commission, which is one of several federal regulators investigating the trading losses, is interested in the valuation of the trades, according to a person briefed on the investigation.

Separately, federal regulators from the Office of the Comptroller of the Currency and the Federal Reserve Bank of New York stationed at the bank’s Manhattan headquarters have been examining the valuation of the trades in weekly meetings with the staff at the chief investment office, according to current regulators who insisted on anonymity because the investigations have not concluded…

http://dealbook.nytimes.com/2012/07/13/jpmorgan-says-traders-obscured-losses-in-first-quarter/?nl=todaysheadlines&emc=edit_th_20120714

Is JPMorgan Chase Out of Controls? [Rogue CEO alert]

By the time Dimon and Braunstein certified in May that the company’s controls were effective, the company already had acknowledged that it had given false first quarter value-at-risk numbers for the chief investment office — which was prima facie evidence that its controls had a serious weakness.   Dimon and his executive team should have been on notice by that point that the numbers coming out of London couldn’t be trusted — and that they couldn’t possibly have known everything they needed to know to sign off on them.

The timing of JPMorgan’s decision to restate its financials for the first quarter also looks suspect. In its disclosure filing Friday with the Securities and Exchange Commission, JPMorgan said it had reached the decision to restate on July 12 — as if it shouldn’t have been obvious to management before then that investors no longer should rely on the company’s first quarter financial statements…

http://www.bloomberg.com/news/2012-07-13/is-jpmorgan-chase-out-of-controls-.html

Though many investors and traders were once again fooled by Dimon’s legerdemain, much of JPM’s rally on Friday was due to celebrity stock endorser, Warren Buffett’s, announcement that he owns 1 million shares of JPM in his personal account.  Buffett spent considerable energy shamelessly shilling for JPM and Dimon, which pushed ‘talking one’s book’ to a new level.

U.S. Is Building Criminal Cases in Rate-Fixing

The department’s criminal division is building cases against several financial institutions and their employees, including traders at Barclays… But the Libor case presents a potential opportunity for prosecutors. Given the scope of the problems and the number of institutions involved, the rate-rigging investigation could provide a signature moment to hold big banks accountable for their activities during the financial crisis. “It’s hard to imagine a bigger case than Libor,” said one of the government officials involved in the case… http://dealbook.nytimes.com/2012/07/14/u-s-is-building-criminal-cases-in-rate-fixing/?nl=todaysheadlines&emc=edit_th_20120715

Some pundits believe that Libor prosecutions against banksters could be Obama’s October Surprise.

Merkel faces revolt over Spanish bank aid The Bundestag is expected to vote on Thursday in favour of the bailout with a clear majority, thanks to the support of the opposition Social Democratic and Green parties, but Volker Kauder, parliamentary leader of the Christian Democrat group, forecast at the weekend that Ms Merkel would not gain an outright “chancellor’s majority” for the deal. That would require 311 votes in favour in the 620-strong assembly…

In spite of the revolt, the European Stability Mechanism – the permanent eurozone rescue fund – was passed with a two-thirds majority, thanks to SPD and Green support…

Jens Weidmann, president of the powerful German Bundesbank, said in a weekend interview that the European aid plan would be more effective if conditions were applied across the Spanish economy…

http://www.ft.com/intl/cms/s/0/4ce210fe-ce88-11e1-9fa7-00144feabdc0.html#axzz20iArREbU

Francois Hollande: Peugeot job cuts are ‘unacceptable’

PSA Peugeot Citroën’s plans to slash 8,000 jobs are “unacceptable” and must be renegotiated, French President Francois Hollande said on Saturday. http://www.telegraph.co.uk/finance/newsbysector/industry/9400090/Francois-Hollande-Peugeot-job-cuts-are-unacceptable.html

“Everyone wants to live at the expense of the state.  They forget that the state lives at the expense of everyone.” – Frederic Bastiat [in Marc Faber’s latest missive]

Italy eyeing public asset sale to slash debt

Italy’s new finance minister said the government could raise up to 20 billion euros a year in public asset sales, and accused the markets of failing to recognise Rome’s efforts to bring its finances in order…

http://ca.news.yahoo.com/italy-eyeing-public-asset-sale-slash-debt-203651146.html

The usual suspects in the financial media twisted Atlanta Fed President Dennis Lockhart’s oft-repeated view that ‘if the economy worsens, the Fed should act’ into ‘the Fed needs to implement QE.’

Many people have been very wrong on QE for over a year.  Now that the global economy is ebbing, they hope that being a broken clock will eventually payoff.

But there is a huge obstacle to QE that is growing: food inflation due to the drought in the Midwest.

Food crisis fears as US corn soars [Fed doesn’t want a repeat of spring 2011 and Arab revolts]

With the price of agricultural staples such as corn, soyabeans and wheat soaring for the third summer in five years, the prospect of another price shock is once again becoming a prominent concern for investors and politicians alike…

The rise in grain prices has inspired comparisons with 2007-08, when a price surge triggered a wave of food riots in more than 30 countries from Bangladesh to Haiti, and 2010, when Russia banned grain exports, setting off a price jump that some have argued helped to cause unrest across the Arab world last year…A sharp rise in food prices is worrying for the global economy for two reasons. Firstly, and most damagingly, it has the potential to cause social and political upheavals such as last year’s Arab spring…

by reintroducing inflation as a worry for central bankers, particularly in emerging markets where food prices account for a large share of inflation…

http://www.ft.com/intl/cms/s/0/ad1ec426-cd07-11e1-92c1-00144feabdc0.html#axzz20XgI9SAq

Today – SPUs are down 3.40 as we write due to the ECB story…Citi is expected to report .89.  Earnings reporting season begins in earnest tomorrow…If Bernanke does NOT suggest QE 3.0 is imminent on Tuesday, stocks should sag, depending on earnings.  The same is true for Wednesday…The expiry rally might then be delayed until Thursday, again depending on earnings and news.

Expected economic data: Empire Manufacturing 4.0; Advance Retail Sales 0.2%, Ex-Autos 0%, Ex-Auto & Gas 0.2%; Business Inventories 0.2%

City paid $18 million in disability to cops, some with other jobs [disability out of control]

Two years ago, Siedlecki’s doctor signed a two-page report stating that Siedlecki isn’t “capable of safely discharging a firearm.”…Asked how he’s able to shoot a rifle but not safely fire a handgun, Siedlecki says, “Traveling on safari with your son doesn’t equate to discharging a weapon on your hip as a police officer on the streets of Chicago.”… http://www.suntimes.com/13688828-761/city-paid-18-million-in-disability-to-cops-some-with-other-jobs.html

The NY Times with incredibly bad news for the president and his supporters: Ms. Pritzker’s commitment has become a matter of mystery and consternation among some Obama supporters struggling to recreate the success of the 2008 finance team that she led as chairwoman. Though she is assisting with the re-election campaign in a number of ways, Ms. [Penny] Pritzker — whose family owns the Hyatt hotel chain and is active in charitable and Jewish causes — is less visible, has cut back on fund-raising and has told friends that she is intentionally doing less.

Some donors have taken that as a signal — or used it as an excuse — to scale back, according to those involved in fund-raising, even as the president’s fund-raising pace lags behind that of his Republican rival, Mitt Romney…

She had drawn business and Jewish leaders to support Mr. Obama, but when many of them turned hostile toward the president because of his policies, some directed their ire toward her, even though she had her own criticisms, too… http://www.nytimes.com/2012/07/15/us/politics/penny-pritzker-had-big-role-in-obama-08-but-is-backstage-in-12.html?_r=1&nl=todaysheadlines&emc=edit_th_20120715

This is unfathomably horrid news for the president because without Penny Pritzker, there would be no presidency for Obama.  Pritzker made Obama, who was an obscure community organizer that was buried politically on Chicago’s Southside.  Obama finished dead last, a distant third, when he ran for Congress.  But Prizker extracted Obama out of the Southside and anointed him.

The White House

Office of the Press Secretary

Remarks by the President at a Campaign Event in Roanoke, Virginia

If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business — you didn’t build that.  Somebody else made that happen…

http://www.whitehouse.gov/the-press-office/2012/07/13/remarks-president-campaign-event-roanoke-virginia?utm_source=wh.gov&utm_medium=shorturl&utm_campaign=shorturl

Don’t be too harsh on the president.  His life experience forces him to view the world this way.

‘Monica, Monica’ chants taunt Clinton in Egypt

US Secretary of State Hillary Clinton was taunted by chants of “Monica, Monica” by tomato-throwing demonstrators as she visited the Egyptian port city of Alexandria on Sunday…

http://ca.news.yahoo.com/monica-monica-chants-taunt-clinton-egypt-191217298.html