This day in history – August 14

2003 – At 4:10pm, power across 8 US states and parts of Canada goes out, resulting in the second most widespread blackout in history. The blackout extends from Massachusetts all the way to Michigan and into Ontario, Canada, effecting more than 55 million people across the two countries. Although power is restored to some areas by 11pm, it takes 2 days for power to be fully restored to all areas. An investigation later reveals that it was triggered simply by lines in Ohio coming into contact with trees, and a faulty alarm system that failed to promptly alert technicians to transfer power from the overloaded lines, resulting in a cascading overload that eventually brought down the whole system. I was in London at the time, but my colleagues often reminisce about the night they slept in the office because it was the only place that had power (backup generator) and hence AC in the 90 degree heat.

1994 – Illich Ramirez Sanchez, a Venezuelan terrorist more commonly known as Carlos the Jackal, is finally captured after more than 20 years of terrorist activity across Europe and the Middle East. Implicated in a number of assassination attempts, hostage takings, and bombings, Sanchez is eventually tried and imprisoned in France for the 1975 murder of two Paris policemen and Michel Moukharbal, a Mossad agent who had identified Sanchez to the policemen. With the assistance of local authorities, Sanchez was captured in Sudan, where he had been given asylum after being expelled from Syria in 1991. After a minor operation, Sanchez was tranquilized by his bodyguards while he slept, and handed over to the French. He remains in a French prison, his most recent appeal having been denied on June 26, 2013.
Carlos the Jackal

1935 – President Franklin Delano Roosevelt signs into law the Federal Ponzi Scheme Social Security Act. The act provides benefits to both retirees and the unemployed, to be funded by a special payroll tax imposed on both employees and employers. It is a bold assertion of heretofore unknown federal power, but legal challenges are eventually defeated in a SCOTUS 5-4 decision, one of several decisions to uphold New Deal legislative efforts that reversed an earlier trend of New Deal courtroom defeats, a reversal that coincidentally came after Roosevelt proposed legislation that would allow him to essentially pack the Supreme Court with his own justices, diluting the power of the sitting justices.
FDR signs SS

1945 – Word of Japan’s impending surrender to the Allies sparks a coup in Japan, with over 1,000 Japanese troops storming the Imperial Palace in an attempt to prevent the surrender proclamation from being announced. Troops loyal to the Emperor repulse the attacks, and the Emperor delivers the proclamation the following day. (More on which tomorrow!)

1765 – Colonists gather on the corner of Essex Street and Orange Street (later Washington Street) under an Elm tree in Boston to protest the passage of the Stamp Act, an act of the British Parliament that required colonists to purchase a British stamp for every official document obtained. The protestors hung an effigy of the local stamp-duty collector in the tree, the first public act of defiance for those who would later call themselves “Sons of Liberty” (sexists that they were), and the beginnings of the movement that would grow into the American independence movement and eventually the American Revolution. The tree, from then on to be named the Liberty Tree, became a symbol of American protest against the British, but would eventually be cut down by loyalists in 1775 when the Continental Army laid siege to the British occupied city.
Liberty Tree

Morning Report – Why Summers? 8/14/13

Vital Statistics:

 

  Last Change Percent
S&P Futures  1688.7 -2.1 -0.12%
Eurostoxx Index 2843.7 2.1 0.07%
Oil (WTI) 106.3 -0.5 -0.51%
LIBOR 0.263 -0.001 -0.38%
US Dollar Index (DXY) 81.74 -0.031 -0.04%
10 Year Govt Bond Yield 2.71% -0.01%  
Current Coupon Ginnie Mae TBA 104.3 0.1  
Current Coupon Fannie Mae TBA 103.4 0.1  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.39    

 

Markets are down small after wholesale inflation came in lower than expected. Mortgage Applications fell 5% last week. Bonds and MBS are up small.
 
Mortgage Apps fell 4.7% last week, with the purchase index decreasing 5% and the refi index dropping 4%. Refis were 63% of all applications, with 35% of the refis being HARP. Surprising result given that mortgage rates fell last week, albeit by only a few basis points.
 
The Producer Price Index showed low inflation at the wholesale level. Now that QE4EVA is officially done, inflation numbers matter again. If they are too low, then the Fed may re-think the timing of their exit strategy. The Fed fears deflation more than anything, because if prices are falling in the context of zero percent interest rates, that means real (inflation-adjusted) rates are rising. And that problem has bedeviled the Japanese for almost 20 years. In related news, 65% of all economists expect the Fed to begin tapering QE at the September meeting. The expected change? Purchases go from $85 billion to $75 billion.
 
Remember all of that widespread mortgage fraud?  Turns out the Obama administration made it up, or at the very least wildly exaggerated it. The Administration was forced to reduce the number of people criminally charged from 530 to 107. Victim losses were reduced to $95 million from $1 billion, and the number of victims were cut to 17,185 from 73,000. 
 
Why does Obama want Larry Summers for the Fed, when he can make a groundbreaking choice with eminently qualified Janet Yellen? According to a note from Mizuho Chief Economist Steven Ricchiuto, it is because Summers is more of a political guy who will support activist fiscal policy. In other words, Obama wants an ally at the Fed to increase pressure on Congress for more public-works spending (in order to dole out projects to help boost vulnerable candidates in 2014). Interesting take, and makes more sense than anything else I have heard.