UNTIL THE NEXT TIME

There is a lot of stress of late not just on investors but stress tests.

In Europe banks--mimicking their American counterparts--are set to take the test, more than 130 of them. And apparently there are other stress tests planned, not unlike television networks when one has it others feel the need.

Some banks will no doubt fail the test, most likely smaller to mid-sized ones without the benefit of an official not-too-big-to-fail sanctioned put option.

Last week indexes that track the financial well-being of these banks receded and, magically, they're back up so far this week. So what's up with all this?

Well, in our rather provincial, forget-all-the-noise view, we like banks. They're a lot like girls. We like some of them, not all of them. When interest rates start back up--and they will--loans will increase and banks, less unfettered, will start booking profits on  the spread.

That's there meat and potatoes if you rule out their ability to  make trading profits. But then again making profit on loan spreads is a form of trading.

Loans are necessary for business expansion whether they come from banks or otherwise. Otherwise sources may prove even more risky and difficult to regulate. 

Why make a loan if there's no profit in it? If you don't understand that--which apparently most regulators and corporate-haters don't--it's not going to happen.

Taking on risk requires reward. Without it the so-called case of economic lockjaw all the hand-wringing is about will continue.

As always one has to do one's homework. Much of but not all of the vilifying of banks is in. Sure, there might be per usual some volatility, but banks that survive (and some should be allowed to fail) will do well until the next time.

Unlike the popular saying, "It's different this time," which almost always proves false, the "next time" is infallible in a world governed by academics, bureaucrats, regulators and politicians. 

In the meanwhile, pick wisely, don't over stay your welcome and make some money.
t. man hatter

OVER NIGHT

Reuters reports that Japanese shares rallied  overnight, hitting a two-week high as the weaker yen boosted exporters.

The Nikkei shares average ended 1.0 percent higher, the best closing level since October 10.
That brought the index up 5.2 percent for the week. Ebola-related products jumped higher responding to news that a New York doctor tested positive for Ebola.

The doctor had work for an humanitarian project in Africa becoming the first person to test positive for the virus in America's largest city. Fujifil, maker of a drug that could be a cure for the disease, rose 2.5 percent while the yen rose of of two-week lows against the dollar as U.S. stock  futures declined over apparent fears about the New York physician and spread of the virus.

The broader Topix  climbed 0.8 percent to 1,242.32.

Meanwhile, in Europe the Ebola virus story seemed to gain traction as shares fell in early trading and the Dow futures were down.

Dow Futures	16,582.00	-31.00	-0.19%
Nasdaq Futures	3,989.75	-15.50	-0.39%
S&P Futures	1,939.75	-6.25	-0.32%
10 Year Yield	2.28%	+0.05	--
Gold	$1,231.30	+2.20	+0.18%
Oil	$81.52	-0.57	-0.69%

Pre-Market Activity

OCT 24 3:49:16am ET

INTERESTING CHARTS

If want to be wrong, forget the Yellow Brick road, just follow the predictions of economists.

Here are some interesting charts with commentary.

Economists wrong, as this chart of the benchmark yield shows:
 
 
 http://www.marketwatch.com/story/yes-100-of-economists-were-dead-wrong-about-yields-2014-2012    




 A third of the companies in the Dow Jones Industrial Average have posted shrinking or flat revenue over the past 12 months, according to data from S&P Capital IQ. Revenue growth for nearly half the industrials didn’t outpace the U.S. inflation rate of 1.7%, according to WSJ.

Mainstream media is trying its best to sell the idea to everyone and anyone that the market's recent rebound is owing to earnings reports. Large caps like IBM and Coca-Cola disappointed the market and paid the price. We're not saying this is any kind of collusion between the Fed's statements and those of MSM, but it is deceptive reporting.

FUNNY THINGS HAPPEN

The official global-government-sponsored highway stick-up continues.

The latest version,taking a page from their American counterparts, Brussels fined banks  94 million euros for alleged collusion.

In a kind of payback time to American officials, recalling what happened to French bank BNP Paribas, JP Morgan was forced to pay the highest sum, nearly 62 million euros for allegedly participating in a cartel scheme to manipulate the Swiss franc Libor benchmark interest rate between early 2008 and mid-2009, according to the Financial Times.

This is not the first times European bureaucrats have opened their palms demanding money. Late last year  the EU commission issued a combined fine of 1.7 billion euros to six banks for allegedly trying to rig two other Libor interest rate benchmarks, the Japan yen and its sister European Euribor. 

The EU's settlements raised the tally for benchmark manipulation to more than $6 billion, a sum that is expected to rise as regulators conclude investigations and as private lawsuits--up to 50 in the US alone--stack up, the Times said.

If you're having a difficult time understanding all this concern about manipulation, you're most likely not alone. Near the end of just last week officials at the Federal Reserve and the Bank of England leaked statements suggesting there might be a delay in both the U.S. and UK monetary tightening.

Funny thing happened. Stock markets took the bait and rallied significantly.  

Question: How do you spell manipulation?

Answer: Verbal put option.

POOR GOVERNMENT A GLOBAL STAPLE

Chicago Mayor Rahm Emanual is a controversial figure. He also has close ties to President Obama.

Now before anyone gets bent out of shape and suggests this is a politically-motivated screed, we say chill. These are facts, hard facts. And if anyone out there can disprove them, have at it.

Now we know Chicago has a rapid transit system that many use to commute, but this is a story that not just the city's motorists but everyone should read. With upcoming elections around the country, voters everywhere have a right to know what they're getting for their money.

And in this case it's just another example of  poor government increasingly going on around the globe.

Complete Failure: Chicago's Speed Camera Traps Fail To Bring In The Revenue Mayor Emanuel Counted Upon

October 22, 2014 Share It | Print This

Source: Tech Dirt

Speed cameras, just like their red-light camera brethren, have been pretty well established as nothing more than revenue machines for local municipalities. Their application results in a myriad of issues, such as the fact that the cameras don't work, not to mention that the cameras don't work, oh, and the cameras don't work and the companies behind them might try to fudge the evidence if you dispute a ticket. The excuse for these cameras that don't work has always been that they are designed to make the roads safer under the theory that if motorists know that the cameras exist, they will be less likely to speed. That supposed justification is belied by two facts. The first is that some people who have tried to warn motorists that the cameras exist have been dragged to court for doing so, which sort of defeats the entire supposed purpose of the cameras. The second fact that disproves the justification is that Chicago just can't help going all Chicago on itself.

Local reporters have the glorious story of the latest Chicago budget crisis that has Mayor Emanuel scrambling for only one reason: Chicago motorists are way better behaved than he'd planned for in his previous budget.

You heard that right: Good behavior is bad for the budget. Real bad, reports CBS 2 Chief Correspondent Jay Levine. CBS 2 has learned the speed cameras caught far fewer speeders than expected. According to the Mayor's 2015 Budget Overview, there have been "lower than expected violation rates."

How much lower? Fifty million dollars lower. Emanuel's administration had figured on $90 million in fines to help balance this year's budget, but they can only count on $40 million. That's a $50 million shortfall, putting pressure on the next spending plan.

Think about the logic here for a moment: Rahm Emanuel wrote a spending budget for the third largest city in the country that relied on a certain revenue number from speed cameras. Where's the incentive for better behavior on the road in that? There is none. The fact is that Chicago drivers are far better behaved than the city expected. That's an outcome you'd think the city would be celebrating. Instead, it's considered a negative, because the speed cameras were neverabout safety, they were only a method to fill the city's coffers to the tune of milliions of dollars. That isn't so much public policy as it is an extortion racket that happens to have failed."It was a combination of the camera company’s salesmanship and the city's greed," says camera critic Barnet Fagel.

You may not want to forgive the camera company their sales tactics, but how much do you really want to fault them? They're a large company beholden to nothing beyond the profit motive. They can't be expected to have the best interests of a city's population at heart. The Chicago city government on the other hand? Most citizens likely didn't elect Mayor Emanuel out of a sense of sadomasochism or the theory that we all just have a bit too much money in our pockets. Stories like these are among the reasons that Emanuel isn't considered invulnerable in the upcoming mayoral election.

THE MSM MORASS

In our recent post, "Pro Choice Not Welcome Here," we mentioned there is no such thing as a pro-business political party in America, just two pro-my interests versus yours and our choices are always better for you than yours.

Public opinion polls about Americans' perception of politicos is about as low as a fat duck's belly. But if you think that's bad the perception of MSM is not much better. 

According to a Gallup survey that was conducted last month, only 40 percent of all Americans have a “great deal/fair amount” of confidence in the mass media. That ties the lowest level that Gallup has ever recorded.

One of the things that point in this direction is studies show Americans are getting more of their news from the Internet theses days. And there are good reasons.

Of  course, like MSM, not everything on the Internet is to be trusted either. But there are plenty of good sites and one has to use one's judgement. Here is a post from one site on the subject. You decide.

http://themostimportantnews.com/archives/10-things-about-the-u-s-news-media-that-they-do-not-want-you-to-know

PRO CHOICE NOT WELCOME HERE

Trade tariffs take many forms.

One again free enterprise takes a kick in the groin from the so-called well meaning as Michigan joins four other states banning direct sales of the growing-in-popularity electric car Tesla.

Republican Governor Rick Snyder, bogged down in a tight re-election raced, signed "legislation banning Tesla Motors Inc. (NASDAQ: TSLA) from selling directly to Michigan consumers. As interpreted by Tesla, the legislation even prohibits the company from opening a gallery where it can show off the car and talk to customers about it in person."

Joining New Jersey, Texas, Maryland and Arizona, Michigan's action was expected.

Auto dealers in the five states succeeded in persuading legislators that the property and sales taxes the dealers pay combined with the number of workers they employ are far more important than letting customers chose to buy what they want. 

The new law requires all new vehicles sold in Michigan to be sold by a network of franchised dealers.

So much for free consumer choice and meritocracy. Though not mentioned by name in the new law, Tesla is the only electric car maker banned. The bipartisan vote tells you want we've been saying for a long time, there is no such thing as a pro-business political party in America, just two pro-my interests versus yours and our choices are always better for you than yours.

And we all know who's going to win that one as long as we continue to accept it.

BEWARE OF BUREAUCRATS BEARING GIFTS

If the term covered is new to you, it shouldn't be.

In the option game one can sell covered calls or buy puts and they in general meet the definition of covered as in less than totally exposed.

Much of the criticism of the ECB President Mario Draghi and the European Central Bank is it hasn't done enough of "whatever it takes." 

But the bank's new program is now underway. As the Financial Times states today:

News of the European Central Bank has begun its programme of buying covered bonds from banks in Spain, France and Germany will only whet the market's appetite for full-blown quantitative easing.

Covered bonds--considered palatable assets because they give the buyer dual recourse, to both underlying collateral and the issuing bank--are part of Mario Draghi's recipe for lowering banks' borrowing costs, boosting their lending and strengthening the ECB's own balance sheet.

Now lets jump on the Good Ship The Other Hand for a quick voyage across the Atlantic.

The Federal Reserve is not a true government entity and neither are Fannie Mae and Freddie Mac. And that gets us to the other hand.

Freddie and Fannie apparently under the guidance of Federal Housing Authority chief Mel Watt is pushing banks, according to the Wall Street Journal, "to repurchase loans that don't meet their (bank) standards."

If you smell a paradox here, try not to hold your nose in public. Once burned and forever-threatened-with fines, big banks like JP Morgan and Bank of America "have faced tens of billions of dollars of such repurchase demands. They have paid tens of billions more to settle litigation over sales of faulty assets."

So like any twice stung, MSM-vilified investor, banks took steps to protect themselves. To avoid such costs in the future, banks have put in place lending standards that intentionally overshoot the Fannie and Freddie requirements. The result of these so-called credit overlays is that it is harder for borrowers to get mortgages than regulators would like, the Journal notes.

At the same time officials at the Federal Reserve warned banks, as this headline again from the Journal, notes: "Fed Tells Banks to Shape Up or Break Up."  

Federal Reserve officials sent a warning shot across Wall Street on Monday telling bank executives they must do more to curb excessive risk-taking and improve employee behavior at their firms or face  stiff repercussions, including being broken into small pieces.

So lets see if we can get this straight. We have one central bank, the ECB, buying debt to stimulate their economy, but the bonds are hardly the most risky kind lounging around on bank balance sheets, the kind that slow down lending and consume capital. 

And here in America we have more of these ubiquitous bureaucrats telling bankers to clean up your act on the one hand but you need to relax your lending standards and, just trust us on the other, we "will provide details on what faults can trigger a repurchase even after a loan has entered a so-called safe-harbor after three years." 

You got to love the arrogance of these guys and gals. One can only wonder, recalling Dante's Inferno, if there's a special place in hell for these folks.
t. man hatter