Morning Report 10/11/12

Posted on October 11, 2012 by Brent Nyitray

Vital Statistics:

	Last	Change	Percent
S&P Futures	1433.8	7.5	0.53%
Eurostoxx Index	2473.0	16.4	0.67%
Oil (WTI)	92.44	1.2	1.30%
LIBOR	0.34	-0.003	-0.73%
US Dollar Index (DXY)	79.83	-0.092	-0.12%
10 Year Govt Bond Yield	1.71%	0.04%
RPX Composite Real Estate Index	194.3	-0.4

Markets are firmer after a surprisingly low initial jobless claims report. Initial Jobless claims fell to 339k, which is below the average over the past 45 years and more or less consistent with normal non-recessionary economies. Bonds and MBS are down on the report.

At the Council on Foreign Relations yesterday, Jamie Dimon revealed the background to the Bear Stearns deal: “We did them [the government] a favor. We were asked to do it and we did it at great risk to ourselves.” Many on Wall Street suspected the flurry of merger activity at the height of the financial crisis – JPM / Bear & Wamu, Bank of America / Countrywide and Merrill, and Wells / Wachovia were a series of shotgun weddings ordered by the government. Now we have someone explicitly saying that it was. You would think that would be news, especially since the government is suing JPM for stuff that Bear did prior to the merger. Or that fact would be interesting to people who bemoan TBTF. To the Washington Post, they discuss Dimon’s comments with the snarky headline “The Financial Gospel according to JP Morgan Chase CEO.” without mentioning the Bear issue, where they focus on the London Whale. If WaPo is truly representative of the Washington mindset, I guess that article speaks volumes about the disconnect between Wall Street and Washington.

California led the nation into the housing bust; now it is leading the nation out of it. Strength on the coast is steadily moving inland. The Northeast was one of the last to go into crisis, and is still lagging, although rents are up 10% in Manhattan.

Are distressed sales artificially lowering comps, which feeds into appraisal problems with home sales? The NAR thinks so. Given that you have to use comparable sales, appraisals will lag the market, almost by definition. This has caused problems on 35% of sales.

Filed under: Morning Report |

9 Responses

markinaustin, on October 11, 2012 at 8:01 am said:

Did the feds join the NY AG’s suit?

I still expect Dimon can get the Treasury to intervene on JPM’s behalf.

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Michigoose, on October 11, 2012 at 8:53 am said:

Brent:

I’m bringing this over here from yesterday’s Morning Report, since I put it up later in the day and didn’t know if you’d had a chance to see it.

This one’s for you: Lawrence Mishel on The Economic Institute Blog.

I decided to dig a bit deeper into Bureau of Labor Statistics (BLS) data to gauge the divergence of employment growth in the household survey and the establishment survey in September and recent times. It is, after all, the divergence between these two series in September’s jobs report that generated outrageous charges of BLS economists manipulating the data (the household survey showed employment growth of 873,000 in September, which pushed the unemployment rate down to 7.8 percent from 8.1 percent in spite of a surge of new workers into the labor force).

The BLS, being the highly professional agency that it is, provides documentation on how the two series differ and compares the trends obtained in each series on an apples-to-apples basis (or, as close as they can get it); this information is available when the numbers are released each month. That is impressive, by the way. BLS will also share, on request, a spreadsheet providing the actual adjustments made to reconcile the two series over the last 12-month period (using “not seasonally adjusted” data, which is why they show it for the same month a year apart).

The bottom line is that the household survey has shown comparable employment growth as the payroll survey over the last year and less employment growth than in the payroll survey since the trough in June 2009. That’s pretty strong evidence that the trends in the household survey are not spectacular or implausible even though September’s employment growth was quite large. If Jack Welch thinks the September numbers were cooked then he’d also need to explain why the household employment growth was so low, relative to the payroll survey, before September’s data.

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Michigoose, on October 11, 2012 at 9:13 am said:

And OT, but happy 10/11/12, all!

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jnc4p, on October 11, 2012 at 10:17 am said:

“You would think that would be news”

It’s old news. All of this was known years ago.

http://www.thedailybeast.com/newsweek/2009/09/10/the-banker-who-saved-wall-street.html

It does appear that corporate governance has improved though if Dimon would no longer be allowed to do the Bear Stearns deal:

“Would I have done Bear Stearns again knowing what I know today? It’s real close,” he said. “What I know today is if they called me again to do something like that again, I couldn’t do it, my board wouldn’t allow me.”

The bigger scandal is still Bank of America being forced to purchase Merrill Lynch after their due diligence showed that they shouldn’t have done the deal and then getting hit by the Federal regulators for deceiving their shareholders about the deal:

“By December, Lewis was discovering what it meant to have the government as a partial owner. When fourth-quarter losses at Merrill grew to $15 billion, Lewis began to look for a way to get out of the deal. But in tense negotiations with government officials, Lewis was told he had no choice. If he did not go through with the merger, regulators threatened to change the bank’s management.

“Ken Lewis blinked, the full force of the government is being brought upon him. The rules of the game have changed,” Wall Street Journal reporter Dan Fitzpatrick says. “Ken Lewis is on top of the financial services world, but he’s not in charge. The government holds all the cards at the end of the day.””

http://www.pbs.org/wgbh/pages/frontline/breakingthebank/view/

All of this goes to the root issue of the Federal government acting as a regulator/law enforcement on potential illegal activity where the government itself is an unindicted co-conspirator after the fact.

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jnc4p, on October 11, 2012 at 10:21 am said:

“markinaustin, on October 11, 2012 at 8:01 am said:

Did the feds join the NY AG’s suit?

I still expect Dimon can get the Treasury to intervene on JPM’s behalf.”

Not until after the election. The current spate of activity is for public consumption on the campaign trail.

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Brent Nyitray, on October 11, 2012 at 11:02 am said:

jnc, isn’t this the first time that anyone with direct knowledge of the situation actually admitted it was a shotgun wedding?

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jnc4p, on October 11, 2012 at 11:29 am said:

I don’t believe so, but it may be the first time that Dimon has put it in those words himself in public comments. Usually it has been through second hard reporting, and portrayed as Dimon getting a good deal as well.

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Brent Nyitray, on October 11, 2012 at 12:35 pm said:

Michigoose, thanks. Very deep dive into the statistics.

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jnc4p, on October 11, 2012 at 12:56 pm said:

The first significant source I remember for the Dimon/Bear Sterns details was Andrew Ross Sorkin’s “Too Big Too Fail”

http://books.google.com/books?id=g0pn1ambbgkC&pg=PT91&lpg=PT91&dq=too+big+too+fail+dimon+phone+call+dinner&source=bl&ots=F1rHUwu9T7&sig=RUF4WCQd7jqTh-lVztkrl3aKXt4&hl=en&sa=X&ei=lRV3UIriCorg8ASjr4GwBg&ved=0CD4Q6AEwBg

Note also the section on the Treasury Secretary colluding with Dimon to push down the per share sale price a few pages prior.

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