OUR VIEW

For anyone paying attention, the recent U.S. court stickup of British Petroleum may turn out to be the excessive penalty straw that breaks the back of U.S. government robber barons.
 

What's been going on during this crew's reign of corporate terror is huge penalties and adverse legal assessments involving billions of dollars.

The list of victims is long and lush. Wrong doings are one thing and they should be punished. But blatant, broad-daylight stickups need to stop. With the latest BP court decision now one of America's staunchest allies--the United Kingdom, home of BP--has jumped into the fray for the second time.

French bank BNP was sentenced earlier this year to pony up $8.9 billion in fines for its corporate transgressions. Though the Justice Department in a phony, clumsy attempt to show impartiality slapped hefty fines on numerous U.S. corporations--mostly big banks--the penalty pendulum has in the view of many swung way too far.

In a recent amicus brief, the UK government said, according to the Financial Times, "It is the first such statement from the UK on BP's dispute over its compensation settlement, although it last year filed a similar amicus brief in an attempt to help lift the ban on the company winning US government contracts." 

Much talk about corporate greed makes the daily rounds of MSM. Not much on the other hand appears about government greed, one of the classic benchmarks of this administration. 

In a not unrelated matter, the current controversy of tax inversions, a legal move that allows U.S. corporations to move their tax domiciles to countries with lower tax rates by acquiring foreign rivals, New York senior Senator Chuck Schumer was quoted by the Times today:  'We need to move quickly and aggressively to curtail inversions and prevent companies from using shady accounting practices to avoid their US tax obligations."   

Schumer is in a rush to push through legislation to block such deals. Keep in mind that the legislation that allows such deals was framed by previous legislators. That should boost your confidence in anything these folks have to say, right or left. It should also force you to protest any rapid, backroom, overnight change of the law without going to the people first.

Notice the use of the word shady and the suggestion that such moves are unpatriotic, classical stuff from these elected, elitist demagogues. The U.S. tax code covers two parameters, evasion and avoidance. Only one of those is illegal. Taking advantage of  loopholes---another abstract terms politicians and MSM love to saddle with a pejorative connotation--is neither unpatriotic nor illegal.

Go to sleep on both of these issues at your own peril.

That's our view. We hope you know yours.

MARIO: RESCUE ME!

Things get bad and then if one is not looking they can get worse. And if your French President Francois Hollande that what appears to be happening.

According to a new poll quoted in the Financial Times, "Marie Le Pen, leader of  France's far-right National Front, would beat struggling incumbent Francois Hollande in a run-off election for the French presidency."

Though the next election isn't due until 2017, the poll favored Ms Le Pen by a margin of "54-46 per cent if they were matched today in the decisive second round of the presidential election."

But that's just the tip of Hollande's trouble. Another poll showed his approval rating at a new low of  just 13 percent. Left-wing newspaper Liberation, added insult to injury by saying: "Never has a head of state been so devalued."

Going from bad to worse as is often the case usually has a more juicy element, however, and Hollande's situation is no exception. In an apparent case of  hell, fury and scorn, a new book that came out just recently by a Ms Trieweiler, accused Hollande of lying about his infidelity.

Worse yet she accused him of poking fun at the poor, referring to them "the toothless." For a politician who was noted for saying he didn't like the rich, this is damaging copy. 

In an apparent race to the bottom between Hollande and his predecessor, Nicolas Sarkozy, who reportedly  made similar disparaging comments about the poor, Hollande looks to be the victor with his approval rate at 13 percent versus Sarkozy's 20  percent. 

Meanwhile, back at the EU, short-term borrowing costs dropped into negative terrain after ECB President Mario Draghi unleashed  his new program in what some are calling WIT2, cutting interest rates and announcing an asset buyback program.

It now appears as if common folks are not the only ones counting on Whatever-It-Takes Mario to rescue more than than just the economy.
t. man hatter

WEEK UPCOMING

The week is sparse by recent standards especially with investors focusing on the FOMC meeting September 16-17 even more so in light of the recent weak job numbers.

WASHINGTON (MarketWatch)  The August job report was "somewhat disappointing," said Eric Rosengren, the president of the Boston Fed, on Friday. His remarks were the first comment on the data from a Fed official. The central bank will go quiet next week as it prepares for its Sept. 16-17 policy meeting. Rosengren, who is on the dovish wing of the committee, is not a voting member this year. In a speech prepared for a conference of bankers in Boston, Rosengren said the U.S. central bank needs to remain patient on rate hikes to give the labor market more time to heal. There is also no upward pressure on inflation coming from wages, he noted. In his speech, he also called for the Fed to move away from any "date-based" forward guidance, and instead focus on "what incoming data tell us" about progress toward the central bank's twin goals of full employment and stable inflation. With the Fed getting close to its goals, and given uncertainty around forecasts, incoming data could cause the central bank to shift the first rate hike forward or backward in time, he said. Rosengren repeated he does not favor a rate hike until the Fed is within one year of achieving its goals of full employment, which he defined as a 5.25% unemployment rate, and inflation close to 2% annual rate.

Monday, September 8

US Economics (Time Zone: EDT)

3:00 Consumer Credit (Jul) - expected $17.3B, prior $17.25B
11:00 Fed buying $950M-$1.15b Treasuries in 25 to 30-year range
11:30 Treasury to sell $26b 3-month bills, $23b 6-month bills

Global Economics (Time Zone: GMT)

JPY Trade Balance
JPY GDP (2Q final)
CNY Trade Balance
05:45 CHF Unemployment Rate
06:00 EUR German Trade Balance
07:15 CHF CPI
12:30 CAD Building Permits

Earnings

After
FuelCell Energy (FUEL)
Campbell Soup (CPB)

Tuesday, September 9

US Economics (Time Zone: EDT)

07:30 NFIB Small Business Optimism (Aug) - expected 96.0, prior 95.7
10:00 JOLTS Job Openings - exp 4711, prior 4671
10:00 Construction Spending MoM (Jul) - exp 0.8%, prior -1.8%
11:30 Treasury to sell 4-week bills
1:00 Treasury to sell $27b 3-year notes

Fedspeak

10:00am Tarullo (moderate, board member) testifies to Senate Banking Committee

Global Economics (Time Zone: GMT)

JPY BoJ Minutes
01:30 AUD Home Loans
05:00 JPY Consumer Confidence Index
08:30 GBP Trade Balance
08:30 GBP Industrial & Manufacturing Production
12:15 CAD Housing Starts
14:00 GBP NIESR GDP Estimate (Aug)
9:30am BoE's Carney speaks in Liverpool

Earnings

Before:
Barnes & Noble (BKS)
HD Supply Holdings (HDS)

After
Palo Alto Networks (PANW)

Wednesday, September 10

US Economics (Time Zone: EDT)

07:00 MBA Mortgage Purchase Index
10:00 Wholesale Inventories MoM (Jul) - expected 0.5%, prior 0.3%
11:00 Fed to buy $350m-$450m TIPS in 5 to 30-year range
1:00 Treasury to sell $21b 10-year notes (reopening)

Global Economics (Time Zone: GMT)

00:30 AUD Westpac Consumer Confidence
2:45pm BoE's Carney speaks to Parliament

Earnings

After
Five Below (FIVE)
Men's Wearhouse (MW)
Radioshack (RSH)

Thursday, September 11

US Economics (Time Zone: EDT)

08:30 Initial Jobless Claims - expected 300K, prior 302K
08:30 Continuing Claims - exp 2500K, prior 2464K
2:00 Treasury Budget (Aug) - exp -$135B
11:00 Fed to purchase $2b-$2.5b Treasuries in 6 to 7-year range
1:00 Treasury to sell $13b 30-year bonds (reopening)

Global Economics (Time Zone: GMT)

NZD RBNZ Rate Decision
JPY BSI Large Manufacturing (3Q)
01:30 CNY CPI & PPI
01:30 AUD Employment Change
06:00 EUR German CPI (Aug final)
12:30 CAD New Home Price Index
8:00pm ECB's Draghi speaks in Milan

Earnings

After:
Ulta Salon (ULTA)
Kroger (KR)

Friday, September 12

US Economics (Time Zone: EDT)

08:30 Advance Retail Sales (Aug) - expected 0.5%, prior 0.0%
08:30 Retail Sales Ex Auto - exp 0.2%, prior 0.1%
08:30 Retail Sales Ex Auto & Gas - exp 0.4%, prior 0.1%
08:30 Import Price Index MoM (Aug) - exp -1.0%, prior -0.2%
09:55 University of Michigan Consumer Confidence (Sep prelim) - exp 83.5, prior 82.5
10:00 Business Inventories (Jul) - exp 0.5%, prior 0.4%

Global Economics (Time Zone: GMT)

09:00 EUR Eurozone Industrial Production
7:05am BoJ's Kuroda speaks

Earnings

Darden Restaurants (DRI)

Twitter: @MichaelSedacca

THE SURPRISES

What's interesting about this chart in the recemt aritcle in Barron's where it appeared, the caption stated based on many metrics the S&P 500 stock index is cheaper today that an prior peaks in 2000 and 2007.

That's called extrapolation. The suggestion is the past is absolute prologue. Maybe and maybe not. This market run-up is based on what many would say is unprecedented intervention. Not just the market but the economy is also coming off extreme lows from employment to interest rates to, according to the shills for the Street and the Fed, low inflation.

Looked at another way, this is a dangerous supposition. Years ago a friend's significant other ran off and left him early in heir relationship, but returned only to repeat the feat a couple more times. Since she'd come back every time before he assumed she would again. She never did.

It's not just the devil that's in the details. So are the surprises.

SLIDING ONE PAST

 
What this chart should tell you is look for the old slider as in slide one past you.

If you think these numbers are not going to be revised upwards, well, there's probably not much we can do for you except say be sure to regularly take your meds.

With these numbers the Fed doves will be beside themselves as we recently posted earlier today in "The Muddle Thickens." Some of these monetary visionaries think interest rates are still too high.

Upward revisions are par for this Fed. And this one will be no exception. After nearly six years of zero interest rates, a smoking printing press and a balance sheet that's about as ugly as ugly gets, and you can only create 142,000 new jobs. 

Hand me that pencil, the one with the big eraser.

August NFP = 142,000
This morning’s jobs report was surprisingly weak. The U.S. economy created only 142,000 net new jobs last month. We had a nice six-month streak of topping 200,000. That’s come to an end. The unemployment rate ticked down to 6.1%. If you break out the decimals, the unemployment rate was 6.14969 which rounds down to 6.1%. Less than 500 more unemployed would have pushed it up to 6.2%.

To see some interesting charts see the link below.
 www.crossingwallstreet.com/archives/2014/09/august-nfp-142000.

THE MUDDLE THICKENS

Interest rates are not low enough," Minneapolis Federal Reserve President Narayana Kocherlakota said at a Town Hall meeting in Montana, citing subdued inflation and "unacceptably high" unemployment as evidence.

http://www.reuters.com/article/2014/09/05/us-usa-fed-kocherlakota

Here's one of the reasons things are getting more muddled at the Fed. Unlike beauty and many other things in life, inflation is not in the eye of the beholder but in the pocket of those of us who pay it. And there's plenty to go around.

The recent drop in gasoline prices is a concerted attempt to pry consumers' money from whatever might still be limping around in their wallets, Toss in what is now an official attack on consumers for cash hoarding by Fed officials and MSN and you're starting to get the picture.

Heroes, regulators and bureaucrats always need a villain.

Desperate is as desperate does. Flooding the market for nearly six years with zero interest rates without their desired results proved one thing: their tool shed is nearly empty. 

Selling off the country's Strategic Petroleum Reserves to ostensively right many of the current global geopolitical disturbances is among them
http://blogs.platts.com/2014/09/05/sell-oil-spr/ 

 What's even more scary is that many of these ideas come from those in so-called high places.

That the U.S. currently is enjoying a glut of energy, most of it from fracking, a procedure that's hardly the most welcome guest at dinner for a growing number these days, clouds the picture. There are some smart folks out there--you define the term for yourself--who believe this glut is temporary. 

And many of those geopolitical hotspots may turn out to be anything but. 
t. man hatter

TAKEAWAY LESSONS

One writer yesterday following ECB President Mario Draghi's perfromance postulated the the euro is the poor, besieged central banker's only friend.

We on the other hand have taken a different approach saying it's the U.S. dollar. Though it might be just splitting currency hairs, for a long time those ECB bureacratics have been hoping and praying,
praying and hoping that the Greenback would ride to their deflation-stranded rescue.

We'll spare you all the other working parts like the U.S. recovery that might be beginning to recover after being AWOL for five years. The Wall Street Journal yesterday ran the following story. http://blogs.wsj.com/briefly/2014/09/04/5-takeaways-from-the-ecbs-september-meeting/

WILL IT REALLY WORK?

                         

As we keep pointing out, there are many views out there about the European Union what should be done to fix what might turn out to be the unfixable without big, big changes.

Big, big changes usually come wrapped in fancy promises. You can paint a house to make it look better, but the infrastructure can still be rotting.

Everyone wonders if this will work. Let me ask a different set of questions:

1. Why should it?
2. Does the announcement fix any structural problems with the euro?
3. Does the announcement fix any fiscal issues in any European country?
4. Does the announcement fix any competitive disadvantages of France vs. Germany?
5. Does this provide any impetus for structural reforms in France or Italy?
6. If -0.1% rates for funds parked with the ECB did not stimulate lending, why should -0.2% rates?

Yield Down

• The yield on the Spanish 10-Year bond is now 2.16%, down from 4.51% a year ago.
• The yield on the Italian 10-year bond is now 2.35%, down from 4.42% a year ago.
• The Yield on the Portuguese 10-year bond is now 3.15%, down from 6.77% a year ago.

Meanwhile, yield of the US 10-Year treasury is 2.45%. Apparently there is 0% risk of a restructuring of Spanish, Italian, or Portuguese bonds.

Greece was a one-time event, until Cyprus came along. Then it became a two-time event. But don't worry, it will never happen again. 


Anyone believe this?

The above is from http://globaleconomicanalysis.blogspot.com.

NEVER ENOUGH LAND

When is something never enough. Never.

If you're a bit confused, then you've most likely been following the pundits on Mario Draghi and his ECB capers.

Draghi made some changes today, cutting three key interest rates by 0.1 percent and lowering its inflation forecast from a whopping 0.7 percent to a whopping 0.6 percent. Toss in Draghi's plan to start buying euro-denominated covered bonds and some asset-backed securities.

One can only hope those asset-backed securities are not of the subprime species. Just a thought about irony. 

The moves will please some but not all. What Drahi and his central bank compatriots have been waiting an hoping for is the Federal Reserve to pull the EU out of its deep, dank economic slumber.  And that may happen yet wth a stronger dollar and if new Cleveland Federal Reserve President Loretta Mester has much to say.

WASHINGTON (MarketWatch)— New Cleveland Federal Reserve President Loretta Mester sided Thursday with hawks on the central bank on a key issue: whether to scrap the forward guidance at the Fed meeting later this month.

The Fed now pledges to keep rates near zero for a “considerable period” after the end of its bond-buying program.

In her first speech on the economy and monetary policy, Mester said that pledge has outlived its usefulness.

“With the end of the program nearing, I believe it is again time for the committee to reformulate its forward guidance,” Mester said in a speech to the Economic Club of Pittsburgh that was streamed online. “While it might sound best to simply give a date about when liftoff is likely to occur, I believe using a calendar date at this point would be poor communication.”

Mester argued that the new forward guidance should convey that the first rate increase will depend on economic conditions and the speed of its progress toward the Fed’s twin goals of low unemployment and stable prices.

This new language should imply that “a faster pace of progress toward our goals would argue for a faster return to normal, while a more subdued pace would argue for a slower return,” she said.

Mester’s comments put her in the camp of hawkish Philadelphia Fed President Charles Plosser, who dissented from the last Fed statement in late July because he wanted to scrap the “considerable period” language.

“I viewed such language as an inappropriate characterization of the future path of policy and so may limit the FOMC’s flexibility going forward,” Plosser said in a statement in early August explaining his dissent.

Mester worked as a key adviser to Plosser at the Philadelphia Fed before assuming her post at the Cleveland Fed in June. She is a voting member of the Fed’s policy-making Federal Open Market Committee this year.

The Fed's next policy meeting in later this month on the 16th-17th when Fed Chair Yellen will brief the media afterwards. 

What should be clear is the lines are being drawn. If it sounds like an upcoming version of gridlock, you could be onto something.

Mester noted that waiting for wages to rise before acting on inflation is a mistake.

In my view, it would not be prudent for policymakers to simply wait for wages to accelerate before assessing the implications of the stance of monetary policy for future price inflation,” Mester said.

She also noted wages should rise "with not necessarily lead prices."

Go get the pop corn and soft drinks ready--just don't breathe a word to Bloomberg--the show's about to start.

t. man hatter

INTERESTING CHART

Here is an interesting chart from http://www.crossingwallstreet.com/
We’re coming up on what has historically been the weakest time of the year for the stock market. I took all 118 years of the Dow and crunched them into one average year (setting 100 for January 1). Here’s what it looks like:

The Dow has historically peaked on September 6, a Saturday this year, and fallen 2.43% by October 29. That’s equal to about one-third of the Dow’s annual capital gain.

I should caution against reading too much into these seasonal effects, and especially on acting on them. Remember that we’re talking about averages that come from 12 decades’ worth of data. In any one year, a drop of 2.43% over eight weeks would barely be noticed. 

The more important lesson is that summer is usually a good time for stocks. Once summer ends, there’s been a natural energy to take profits. That could certainly happen again this year. But that historic effect doesn’t last long, and the market soon rallies again as winter approaches.

The rally usually comes in November and lasts, if it does last, until around May.