Tracking Police Misconduct

Cato is out with a new website that reports on police misconduct.

Example:

7 Clarkstown NY cops subject of suit by man claiming they beat him on video during a false arrest at a bar [3] http://lohud.us/HwzzpY

Here’s the FAQs on what the project is about and why they’re doing it. Simply put, they’re doing it because nobody else is.

Of course, it is from Cato.   And apparently that’s created a bit of a blogosphere dust-up, as we all know that inside a libertarian is a Republican dying to get out.    For those interested in that see Radley Balko.

Morning Report 5/22/12

Vital Statistics:

  Last Change Percent
S&P Futures  1319.1 3.4 0.26%
Eurostoxx Index 2181.4 31.3 1.45%
Oil (WTI) 92.34 -0.2 -0.25%
LIBOR 0.467 0.000 0.00%
US Dollar Index (DXY) 81.2 0.119 0.15%
10 Year Govt Bond Yield 1.78% 0.04%  
RPX Composite Real Estate Index 175.7 0.1  

Markets are generally firmer this morning on hopes of further stimulus out of China and Europe. Euro sovereign yields are lower. US bond futures are down a point and MBS are down slightly.  MBS underperformed bonds in the rally, so they should outperform as bonds retrace.

Richmond Fed came in below expectations. This survey looks at the service sector for Richmond, Baltimore and Charlotte. Revenues actually contracted in May. They note that service providers expect stronger customer demand over the next six months, while retailers do not. 

Existing Home Sales came in at 4.62MM annualized.  5.5 million is about “average.”  The number is up 10% YOY. The lack of distressed sales and the seasonal move towards bigger houses increased the median price 10% from 161,100 to 177,400. Overall, it notes that the headwinds in the real estate sector are abating.

Yesterday we had a number of sizeable mergers, with Eaton buying Cooper Industries for 12.8 billion, DaVita buying Healthcare Partners for 4.5B and Wanda Group buying AMC. Generally speaking, mergers are a good sign for the markets and the economy in general.

Andrew Ross Sorkin has a good column on why Glass Steagall wouldn’t have prevented the crisis. The Glass-Steagall issue has become a facile explanation of what went wrong. Elizabeth Warren even acknowledges this – one of the reasons she has been pushing reinstating GS – even if it wouldn’t have prevented the financial crisis – is that it is an easy issue for the public to understand and “you can build public attention behind.”  And there you have it. Never mind that nobody else in the world (the UK, Europe, Japan, Canada) separates commercial and investment banking, or even draws a distinction between the two. 

What was the rationale behind Glass-Steagall in the first place?  Poorly underwritten deals (for example, Facebook).  Facebook was the quintessential poorly underwritten deal.  An underwritten deal means that the investment banks (primarily Morgan Stanley) actually write a check to the company and buy 421MM shares at 38. It then places those shares with institutional investors.  If the deal is handled well, Morgan Stanley sells all the stock, collects its fee and moves on. This deal did not go well, obviously. Institutional investors sold into the market and FB was in danger of breaking price. Morgan Stanley stood in the market and bought everything that the market was willing to sell at the offer price. (If an IPO breaks price on the first day, that is a MAJOR embarrassment to the investment bank). So Morgan Stanley is now lugging millions of Facebook shares that it bought in the market at 38. The stock is trading at 32.65. Huge loss. Pre-Glass Steagall, what would they do?  Sell the stock to their captive commercial bank at 38. (Hey, we bumped up your allocation to 5 million shares)  Institutional investors will pull their money out quickly if they sense an investment bank is in trouble.  Depositors at a sleepy commercial bank?  Not so much.  Note:  This was done more with bond issues than stock issues, but the rationale remains the same. In the Great Depression, commercial banks were failing and it turned out their assets were not home mortgages or commercial loans – they were all the lousy deals their sister investment bank couldn’t unload. That is why we had Glass-Steagall – to prevent commercial banks from being repositories for losing positions. 

Fast forward to the financial crisis – commercial banks weren’t failing because they bought CDO-squared issues from their investment banking divisions. Or because Citi was stuffing its retail bank with LBO paper it couldn’t unload. The reason we had a financial crisis is because we had a residential real estate bubble.  Every bank in the US is exposed to residential real estate in some way, shape, or form. And it didn’t matter whether you were exposed to residential real estate through a mortgage backed security or through holding whole loans on your balance sheet.  The small community banks who wouldn’t know a CDO from a codfish blew up just the same as the big integrated banks 

Probably the single best thing regulators could do to prevent a re-occurrence would be to deal with the cascading counterparty risk from OTC derivatives. They should demand that OTC derivatives become standardized and exchange-traded with a central clearing party, position limits, and open interest disclosure. That would have prevented AIG from taking the positions it did and exposing all of its counterparties when it failed.

Baby Boomers: Get Tested for Hep C

So says the CDC.

Apparently 75% of all hepatitis C cases are baby boomers.

More than 2 million U.S. baby boomers are infected with hepatitis C, accounting for more than 75 percent of all American adults living with the virus. Baby boomers are five times more likely to be infected than other adults. Yet most infected baby boomers do not know they have the virus because hepatitis C can damage the liver for many years with few noticeable symptoms. More than 15,000 Americans, most of them baby boomers, die each year from hepatitis C-related illness, such as cirrhosis and liver cancer, and deaths have been increasing steadily for over a decade and are projected to grow significantly in coming years.

This just hit my inbox and figured I’d pass it along. Hep C is passed primarily by blood-to-blood contact associated with intravenous drug use, poorly sterilized medical equipment and transfusions.   So use clean needles people.   Or not at all.

Morning Report 5/21/12

Vital Statistics:

 

Last

Change

Percent

S&P Futures 

1296.5

5.7

0.44%

Eurostoxx Index

2146.8

2.1

0.10%

Oil (WTI)

91.62

0.1

0.15%

LIBOR

0.467

0.000

0.00%

US Dollar Index (DXY)

81.26

-0.036

-0.04%

10 Year Govt Bond Yield

1.73%

0.01%

 

RPX Composite Real Estate Index

175.6

0.0

 

 

Markets are generally firmer this morning on comments from Chinese Premier Wen Jiabao supporting further measures to boost the economy. Euro sovereign sovereign spreads are a touch wider. Bonds and MBS are down.

The Chicago Fed National Activity Index rose .11 in April after falling .44 in March. This basically means that the economy is growing at its historical trend. Anything between -.7 and +.7 is considered on trend. Production was a positive factor, while consumption was negative. Employment was neutral.

Is the Fed more optimistic about future growth than Wall Street?  It appears to be the case. The average Wall Street growth forecast for 2012 is 2.3%, while the Fed is forecasting 2.4% – 2.9% growth. One explanation is that the Fed underestimates how much the credit-multiplier breaks down in the aftermath of asset bubbles. Meanwhile, the TIPS market is trimming its inflation forecast and giving Ben Bernake the room to maneuver.

Facebook has broken the IPO price in the pre-open and is trading at 36.51.  5.6 million shares have traded. Bob Griefeld, CEO of NASDAQ, blamed software glitches for the problems with trading FB on Friday where customer sell orders were delayed on the open.

Bites and Pieces, A Quiet Saturday Edition

Most of you who have heard of Steven Raichlen will have heard of him in his roll as BBQ guru, but I first came upon him as the author of a series of “High Flavor Low Fat” cookbooks, in which he espouses the use of spices–and lots of them–to make food satisfying and comforting. Some of his substitutions are more successful than others, but these three recipes from his “High Flavor Low Fat Vegetarian Cooking” book are some of my favorites, especially as the weather starts getting hotter and gardens start ripening (I think Lulu’s going to love the third recipe–I bet she’s got everything except the saffron and noodles growing in her garden!)

Peking Tacos

  • 10 flour tortillas
  • 2 cups mung bean sprouts
  • 10 scallions, thinly sliced into rounds
  • 1 cucumber, peeled, seeded and cut into 2-inch matchsticks
  • 2 1/2 cups red-cooked beans
    • 1 cup Chinese rice wine or sherry
    • 1 cup water
    • 4 T soy sauce
    • 1/4 cup light brown sugar
    • 2 star anises
    • 1 cinnamon stick
    • 3 pieces dried tangerine peel or 2 strips fresh tangerine or orange peel
    • 2 cloves garlic, peeled
    • 2 1/4-inch-thick slices fresh ginger
    • 3 scallions, trimmed and finely chopped
  • 1/2 cup hoisin sauce

To make the red-cooked beans, combine all of the glaze ingredients in a large heavy saucepan and bring to a boil.  Boil the mixture until thick, glazy, and reduced to about 1/2 cup.  Stir occasionally to keep it from boiling over.  Strain the mixture into a large nonstick frying pan and add 2 1/2 cups cooked beans, then cook over medium heat until the beans are thickly coated with glaze, 3 – 5 minutes.  Correct the seasoning, adding soy sauce or sugar as needed so that the beans are sweet, salty and aromatic.

Place the bean sprouts in a strainer and pour boiling water over them; drain well.  Soften the tortillas by heating, then assemble the tacos by brushing some hoisin sauce onto a tortilla, sprinkle scallion rounds and some bean sprouts on, then top with red-cooked beans and some cucumber matchsticks.  Fold (or roll) and enjoy!

Crusty Millet Cakes with Feta Cheese

  • 1 1/2 cups millet
  • salt
  • 1 T EVOO
  • 2 cloves garlic, minced
  • 4 scallions, finely chopped
  • 1/2 red bell pepper, diced as finely as possible
  • 1/2 yellow bell pepper, diced as finely as possible
  • 3 T finely chopped flat-leaf parsley
  • 1/4 cup feta cheese, crumbled
  • Freshly ground black pepper

Cook the millet in 3 cups rapidly boiling, lightly salted water for 20 – 30 minutes, or until tender.  Drain in a strainer and let cool; do not rinse.

Heat 2 teaspoons EVOO in a nonstick skillet; add teh garlic, scallions, bell peppers and parsley and cook over medium heat until soft but not brown, about 3 minutes.  Combine these vegetables and the millet, cheese, salt and pepper in a large bowl and mix well; correct seasoning if needed.

Note: This is where I depart from Steven’s recipe: he has you fry them in oil over medium low heat, but I could never turn them without them falling apart. . . so I bake them.

Preheat an oven to 425 degrees; form the millet mixture into 12 3-inch patties and place them on a baking sheet.  Bake 10 – 15 minutes, until heated through, then brown by placing under the broiler for a minute or two 1″ from the heat.

Grilled Zucchini Lasagna with Roasted Red Pepper Sauce

For the Red Pepper Sauce:

  • 4 large red bell peppers
  • 1 T olive oil
  • 1 onion, chopped
  • 3 cloves garlic, chopped
  • 3/4 cup bread crumbs
  • 1 T balsamic vinegar
  • 1/4 t saffron, soaked in 1 T hot water
  • 2/3 cup vegetable (or other) stock
  • salt, freshly ground black pepper and a pinch of cayenne pepper

To finish the lasagna:

    • 6 medium zucchinis cut lengthwise into 1/3-inch slices
    • 1 to 2 t EVOO
    • 9 lasagna noodles
    • 21 basil leaves

Make the red pepper sauce by roasting, peeling, and coring/seeding the red peppers.  Heat the oil in a large nonstick skillet and cook the onion and garlic over medium heat until soft but not brown.

Combine the peppers, onion mixture, and bread crumbs in a food processor and puree to a smooth paste.  Add the vinegar, saffron and enough vegetable stock to obtain a thick sauce (the mixture should be the consistency of soft ice cream.)  Correct the seasoning, adding salt, pepper, cayenne and vinegar to taste: the sauce should be very highly seasoned.  Preheat your grill to high (this is where Brent and Brian can get excited about this recipe!)

Lightly brush each zucchini strip with olive oil and grill until limp(2 – 4 minutes/side) or, if you must, broil or oven-roast the strips.  Cook the lasagna noodles in 4 quarts rapidly boiling salted water for 8 minutes or until al dente; drain the noodles and rinse with cold water.

Preheat the oven to 350 degrees.  Lightly oil an 8 x 11-inch baking dish; spread 3 lasagna noodles over the bottom, then arrange 1/3 of the zucchini strips over the noodles, 1/3 of the basil leaves, and 1/3 of the sauce.  Repeat for layers two and three.  The lasagna can be prepared up to 24 hours ahead to this stage.

Bake the lasagna for 30 – 40 minutes or until thoroughly heated.  Enjoy!

Note: I usually make about twice as much sauce when I’m doing this, since it also is a great dip/spread for veggies and good bread.  Bon appetit!

Morning Report 5/18/12

Vital Statistics:

 

 

Last

Change

Percent

S&P Futures 

1307.5

6.2

0.48%

Eurostoxx Index

2155.6

8.7

0.40%

Oil (WTI)

92.68

0.1

0.13%

LIBOR

0.467

0.000

0.00%

US Dollar Index (DXY)

81.38

-0.004

0.00%

10 Year Govt Bond Yield

1.72%

0.02%

 

RPX Composite Real Estate Index

175.6

0.1

 

Markets are firmer this morning after enduring a bloody week which sent the S&P down 3.6% and the 10 year government bond yield down to 1.69%. Today is also the expiration of May options, so there is always the potential for funny closing prints. There is no economic data being released this morning.  Bonds and MBS are down slightly.

It’s Facebook Day! Facebook priced at the top end of the revised range last night and should begin trading around 11:00. There are a stocks that capture the attention of the populace and Facebook is one of them. Growth fund managers who have been starving for a good growth story besides Chipotle Mexican Grill and Lululemon just got a new one. With an IPO price at 28x revenue, the stock will have to almost collapse to get value and GARP guys interested. I’m sure if you are a good technical trader, you should be able to have a field day with this one. Treat it as a slip of paper with an alphanumeric code, not an investment, cause it isn’t.

Bloomberg has a column on why principal reductions won’t solve the housing crisis. The big problem is that something like 80% of all underwater homeowners with Fan and Fred mortgages are current on their mortgages. Any principal reduction program will encourage people to stop paying their mortgage. Second, of those seriously delinquent, most of them won’t be able to afford the lower payment anyway.

The National Association of Home Builders and Wells Fargo have constructed a housing affordability index, which is a measure of the percent of homes affordable by someone at the median income. The latest index is 77.5, which means 77.5 percent of all new and existing homes sold in Q1 were affordable for families earning the national median income. In a lot of ways, this chart is the inverse of my median house price to median income chart.

Chart: NAHB / Wells Fargo Housing Affordability Index:

 

The Wrong Focus?

According to US Postal Service financials, in 2007 the USPS posted a net loss of $5.1 billion. In 2008 it posted a loss of $2.8 billion. In 2009 the loss was $3.8 billion. In 2010 it posted a loss of $8.5 billion. In 2011 it posted a loss of $5 billion. In the most recent quarter this year, it reported a loss of $3.2 billion, bringing this year’s total loss to $6.2 billion.

So let’s add that all up. Since 2007 the USPS has lost a total of $31.4 billion.

Now, a question for the folks of ATiM: Who should the US taxpayer be more concerned about having to support with a taxpayer funded bailout, the US Postal Service or JPM Chase?

Next up…how much have taxpayers piled into Amtrak over the last 5 years?

Tribute to MCA

http://vimeo.com/42106181

This may or may not be your thing, but I found this to be hilarious. The only flaw that I can see is the use of guns, which were not in the original.

And here’s the original

Bank bailouts and “risky bets”

The conventional story line behind the passage of the new Dodd-Frank regulations, and in particular the Volcker rule, is that prior to 2008 banks were using federally guaranteed deposits to engage in highly risky “bets” using complex and esoteric derivative products which eventually blew up, necessitating a government bailout of the banks. In order to prevent taxpayers from yet again having to bear the cost of these risky bets going bad in the future banking activity needs to be much more heavily regulated and indeed much activity, such as these “bets” using derivatives, needs to be prevented entirely.

When it is pointed out, as I did yesterday, that in fact the “bailout” of the banks didn’t cost the taxpayers anything, and that the taxpayer has actually netted a profit on the assistance provided to banks during the 2008/09 crisis, the usual retort (although admittedly not in evidence yesterday) is that the bailout of AIG, while not officially a bank bailout, was in reality a backdoor bailout of the banks, and that particular bailout has not only not netted any profit for taxpayers, it is almost certainly going to result in a loss. While this is certainly a reasonable point to make, it also demonstrates the folly behind the conventional belief that it was “risky bets” on derivatives that resulted in bank losses.

The reason that the AIG bailout can be seen as an implicit bank bailout is that AIG owed the banks (or it owed some banks/institutions which in turn owed others) a lot of money on its derivative trades, and if AIG defaulted on its obligations, the banks would be out a lot of money. But if these were simple, outright bets of the sort routinely condemned by those in favor of Volcker or Glass-Steagall on the part of the banks, the bailout would have been totally unnecessary because the bank “losses” would have simply been paper losses of profit, not an actual drain on bank capital. The reason that AIG’s failure to pay would have been so devastating to the banks is because the gains from the “bets” with AIG were needed to offset losses that were being incurred elsewhere on other positions, for example corporate and real estate lending activities. In other words, the “risky bets” with AIG must in fact have been hedges, not outright bets. To draw an analogy, if you make a $1 million dollar bet with your neighbor on the outcome of the Super Bowl, but he fails to pay you when you win, you have, strictly speaking, “lost” $1 million dollars, but you aren’t going to have to sell your house and bankrupt yourself because of it. You haven’t actually “lost” any of your previously held capital at all.

The real problem, of course, was not that the banks lost on their “bets”, but that without the payouts from these “bets” that they had actually “won”, the banks stood to lose actual capital on the positions that the AIG “bets” were meant to hedge. Looked at another way, the losses the banks faced due to an AIG collapse were not due to “risky bets” on derivatives, but were instead due to a bad credit decision, ie the judgement that AIG would make good on its covering obligations. And as far as I know, no one is proposing that banks be disallowed from making credit decisions in order to protect taxpayers from such risk.

Now, the AIG situation does point to an area of the various derivatives markets that does deserve some attention. Would the banks’ judgement of AIG as a worthy credit have been the same had they known the extent of the risks that AIG was insuring against? Or, would AIG themselves have insured so much risk if they were required to post hard capital as margin/collateral against potential losses (over and above simple mark-to-market collateral) on the risks they were insuring? These are worthy questions, and areas where sensible regulation might prove beneficial. But the conventional portrayal of “risky bets” on derivatives as the cause of bank losses necessitating a bank bailout is both wrong and is spawning monstrous regulations that will do little more than make banks less profitable than they otherwise would be, and hence more likely to fail.

Morning Report 5/17/12

Vital Statistics:

 

 

Last

Change

Percent

S&P Futures 

1319.6

-2.8

-0.21%

Eurostoxx Index

2140.4

-35.0

-1.61%

Oil (WTI)

93.04

0.2

0.25%

LIBOR

0.467

0.000

0.00%

US Dollar Index (DXY)

81.59

0.218

0.27%

10 Year Govt Bond Yield

1.76%

0.00%

 

RPX Composite Real Estate Index

175.6

0.1

 

 

Markets are lower this morning on a report in the Spanish press that Moody’s will downgrade the Spanish banks today and the continuing stand-off between the ECB and the Greek banks. The Spanish IBEX stock exchange is down 24% for the year and is at 9 year lows. Despite the headlines, Euro sovereign yields are flat / lower.

Initial Jobless claims came it at 370k, in line with expectations and we have good earnings from Wal-Mart and Sears. Later today, we will get Philly Fed. Bonds and MBS are up slightly.

Facebook prices tonight and should start trading tomorrow. Barry Ritholtz weighs in. David Einhorn took aim at AMZN at the Ira Sohn conference. His comments could have come from a Alan Abelson column in 1999. I expect to hear a lot of the same “you don’t get it” arguments on FB that we heard on AMZN back then.

The minutes of the April FOMC meeting were released yesterday afternoon. They note the possibility of “taxmageddon” – the expiration of the Bush tax cuts – as a sizeable risk to the economy. While they note the size of the shadow inventory and tight lending standards, they believe real estate prices have stabilized. Overall, there seem to be no major changes in this statement – the Fed remains open to QEIII should economic conditions warrant. 

Ellie Mae released their latest Origination Insight Report. Ellie Mae provides loan processing software and handles about 20% of US mortgage loan origination. Typical profile of a denied loan?  702 FICO / 87 LTV / DTI 28/43.  Talk about a tight mortgage market. 

The problem with having a London Whale is that you have thousands of Ahabs shooting harpoons at you once you disclose you are in trouble with an oversized position. Dealbook is estimating that JP Morgan’s trading losses have increased from $2 billion to $3 billion in the last 4 days as every wise-guy hedge fund manager that missed the initial trade puts it on.