Submitted by Lance Roberts of STA Wealth Management,

Since Easter is a time of family, compassion, forgiveness and resurrection, I thought this would be a good weekend to think about the income inequality/wealth gap which will be part of the mid-term election debate. There are many questions that must be answered from not only “how” to solve the issue, but also “should” it be?

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Submitted by Lance Roberts of STA Wealth Management,

Since Easter is a time of family, compassion, forgiveness and resurrection, I thought this would be a good weekend to think about the income inequality/wealth gap which will be part of the mid-term election debate. There are many questions that must be answered from not only “how” to solve the issue, but also “should” it be?

There is no historical evidence that wealth redistribution leads to stronger economic outcomes as it discourages “hard work.” However, there is also little argument that the current state of crony capitalism and corporate greed has gotten more than just a bit out of hand.

To start our thought process in this week’s things to ponder here is a study on the wealth inequality gap in America by Politizane:

1) Thomas Piketty, Whither The Bottom 90% by Scott Winship via Forbes

"Piketty’s book lays his cards on the table from the start. He titles it to evoke Marx and begins with an epigraph quoting the Declaration of the Rights of Man and the Citizen to the effect that all inequality should be viewed as suspect. He poses the question in which he is interested as whether capitalism is fundamentally self-correcting in a way that prevents inequality from getting out of control or whether it will produce ever-rising inequality. While he allows that his answer is “imperfect and incomplete,” his modesty goes out the door before that paragraph ends. Piketty’s thesis, in his own words:

 

'When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.'"

2) The War On Poverty Is Grounded In Paternalism by Scott Beaulier via Real Clear Markets

“The plight of the poor is about a lot more than getting a better education or finding a job. It's about repairing the damage that has been done to their lives on a multitude of margins--broken families, stress and depression, fear of crime, drug use, etc. And, the plight varies from person to person and community to community. Like the broader effort to alleviate world poverty that I mentioned earlier, our War on Poverty has layered one bad idea on top of another in the hope something will stick. Yet, the problem persists, and there are few promising signs we are even headed in the right direction.”

3) Baseball And Income Inequality by Nick Colas via ZeroHedge

“The United States already has the highest level of income inequality of any advanced country (according to the CIA’s World Factbook), but particular cities within the country display a considerably higher level than the national average.  And among cities with Major League Baseball teams, the inequality that exists regarding ticket prices directly correlates with the level of inequality in those urban areas.”

4) The Mismeasure Of Inequality by Kip Hagopian and Lee Ohanian via The Hoover Institution

“Perhaps the most important question left out of almost every discussion about income inequality is, “Why should we care about it?”

 

Many of those who worry about high income inequality argue that it is an indicator of social injustice that must be remedied through redistribution of income (or wealth). Unfortunately, those who make this claim have not provided any generally accepted criteria for determining when an economic system is unjust. Nor have they provided a convincing argument that such injustice is widespread in the U.S. (In considering this issue, it is worth noting that Greece, Spain, and Italy all have substantially lower income inequality than the U.S. The same is true for Afghanistan, Pakistan, and Bangladesh.)

 

Measuring inequality using the Gini coefficient. There are at least five methodologies used to measure income inequality. The most commonly used is the Gini coefficient (also called the Gini index) developed by Italian statistician Corrado Gini. The Gini coefficient is a method of measuring the statistical dispersion of (among other things) income, consumption, and wealth. The figure of merit for the Gini coefficient for income inequality ranges from zero to 1.0, where zero represents total equality (all persons have identical incomes) and 1.0 represents total inequality (one person has all of the income). By this measure, the U.S. has substantially higher income inequality than almost all other industrialized nations. In 2010, the Census Bureau reported that the U.S. Gini coefficient was .469, while the average Gini coefficient for the 27 European Union nations was .31.^”

5) A Guide To Statistics On Historical Trends In Inequality via Center On Budget And Policy Priorities

“Data from a variety of sources contribute to this broad picture of strong growth and shared prosperity for the early postwar period, followed by slower growth and growing inequality since the 1970s.  Within these broad trends, however, different data tell slightly different parts of the story (and no single source of data is better for all purposes than the others). 

 

This guide consists of four sections. The first describes the commonly used sources and statistics on income and discusses their relative strengths and limitations in understanding trends in income and inequality. The second provides an overview of the trends revealed in those key data sources. The third and fourth sections supply additional information on wealth, which complements the income data as a measure of how the most well-off Americans are doing, and poverty, which measures how the least well-off Americans are doing.”

Whatever your position is on income inequality or the “great wealth divide,” there is little argument that it currently exists.  As I stated at the beginning, the question is whether something should be done about it.  Raising taxes on “the rich,” forced redistribution, increases in social welfare, etc. all have potentially negative economic consequences which affects everyone.

There is clearly no easy solution. However, for the upcoming mid-term elections this debate will waged to swing votes in favor of those who want to remain in political office on both sides of the aisle.  This is ironic considering that the majority of those individuals are currently in the top wealth brackets in the U.S. Maybe we should just start there?

The surge in volume on the anti-HFT equity trading platform IEX - of Flash Boys and TV-fight-night fame - makes it very easy to see how the buy-side (which the US retail investor is one small part of) clearly prefers an un-rigged place to find willing sellers (or buyers). Relatively light regulation and high volumes make the $5.3 trillion-a-day foreign-exchange market a prime target Read more.....

The surge in volume on the anti-HFT equity trading platform IEX - of Flash Boys and TV-fight-night fame - makes it very easy to see how the buy-side (which the US retail investor is one small part of) clearly prefers an un-rigged place to find willing sellers (or buyers). Relatively light regulation and high volumes make the $5.3 trillion-a-day foreign-exchange market a prime target for high-frequency traders. More than 35% of spot currency volume in October was by speed traders, up from 9% five years earlier, but just as in equity markets, there are speculators and there are natural buyers and sellers in FX markets (looking to hedge payments and receipts from real business for example). As Bloomberg reports, a currency-dealing platform known as ParFX, established in 2011, offers a transparent marketplace and subjects orders to random pauses of about 20 to 80 milliseconds, and "is the industry’s effort to heal itself."

IEX volumes hit record highs...

And now the FX markets - also dominated by High-Frequency-Trading - have an anti-HFT platform upon which to transact...

The FX market is just as plagued by the HFT "parasite" as equity markets...

Relatively light regulation and high volumes make the $5.3 trillion-a-day foreign-exchange market a prime target for high-frequency traders. More than 35 percent of spot currency volume in October was by speed traders, up from 9 percent five years earlier, according to Boston-based consultancy Aite Group LLC.

 

...

 

“There’s been a lot of dissatisfaction, particularly on the buy-side and asset-management community, about high-frequency trading,” said Richard Bentley, the vice president for financial services at Software AG, which aggregates trading platforms including ParFX. “There’s the perception that they’re parasites. What ParFX have done is essentially play to that and said, come and trade in our pool, because we’re not going to allow the HFT people to come and spoil the fun.”

And ParFX was set up specifically to rmeove HFT's ability to front-run orders (just like IEX did in equity markets)...

A currency-dealing platform known as ParFX, established in 2011 by firms from Deutsche Bank AG to Citigroup Inc...

 

The system started trading in July, and now executes deals for 15 firms including Deutsche Bank, Citigroup, Barclays Plc and UBS AG, the four biggest currency dealers. It expects to have 25 percent more clients by the end of April.

 

ParFX offers a transparent marketplace and subjects orders to random pauses of about 20 to 80 milliseconds, and “is the industry’s effort to heal itself,” according to Marcus.

The bottom line is a search for "trust" is on the rise...

“These banks do need to trade foreign exchange because it’s their business and they’re hedging their currency exposure across the world,” London-based Marcus said in an April 15 interview. “They would rather trade in an environment that they can trust.”

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

What if we used wellness (Gross Domestic Happiness) as a metric for prosperity rather than GDP?

Distilling an economy's suc Read more.....

While we previously noted the relative stability (but absolute surge) in US military spending over the past few decades, the scale of what the world's peace-keeping, red-line enforcing, hypocrisy-packed nation spends in context to the rest of the world...

Read more.....

While we previously noted the relative stability (but absolute surge) in US military spending over the past few decades, the scale of what the world's peace-keeping, red-line enforcing, hypocrisy-packed nation spends in context to the rest of the world...

Source: AFP

We previously put the US military budget in context over time...

Submitted by Tim Price via The Cobden Center blog,

America is growing older.

Nowhere is this more obvious than in the conversion of America's age pyramid into a rectangle from 1960 to 2050, as was shown in a recent post highlighting America's two 'slow-motion' social dramas. As the Pew Institute summarized "we'll have almost as many Americans over age 85 as under age 5. This is the result of longer life spans and lower birthrates Read more.....

America is growing older.

Nowhere is this more obvious than in the conversion of America's age pyramid into a rectangle from 1960 to 2050, as was shown in a recent post highlighting America's two 'slow-motion' social dramas. As the Pew Institute summarized "we'll have almost as many Americans over age 85 as under age 5. This is the result of longer life spans and lower birthrates. It’s uncharted territory, not just for us, but for all of humanity. And while it’s certainly good news over the long haul for the sustainability of the earth’s resources, it will create political and economic stress in the shorter term, as smaller cohorts of working age adults will be hard-pressed to finance the retirements of larger cohorts of older ones."

And as society comes to grips with the realization that the average age of America will hit new record highs with every passing day for the indefinite future, a new, and far less pleasant topic is sure to gain prominence. Namely: how Americans Die.

This should be intuitive: since older people die sooner than the young, even despite the generally declining mortality by age cohort, the sheer record number of aged Americans will soon drown out the incremental improvements in life expectancy.

But it is not only age that is a key issue: one surprising finding (in addition to a curious tangent of a brief spike in AIDS-related deaths in the late 80s and early 90s for the 25-44 year old cohort), is that over the past decade, motor vehicle accidents has lost its top spot as the primary cause of violent deaths across the population, handing over the title to both drug-induced deaths and suicides. 

Incidentally, in 2010, the number of suicide deaths was nearly four times greater than the number of Americas murdered by firearm. Perhaps it is time to ban suicides.

All these and many other curious observations surrounding this fascinating topic are revealed in the following interactive visual data compendium by Bloomberg's Matthew Klein.

So without further ado, here is a detailed look into How Americans Die.

First, it should be obvious that courtesy of numerous, life-extending advances over the past several decades, the morality rate has tumbled. Yet in recent years, it has been mostly males who have benefited. Overall progress stopped in the mid-1990s.

However the lack of improvement can be attributed to a simple factor: the aging of Americans, and specifially those aged 55 and over have risen as a total portion of the population from a little over a fifth of total in the year 2000 to a quarter currently.

Another obvious observation: old people die sooner than the young

Instead of breaking down the population into genders, looking at age cohorts over time shows a plunge in mortality across all age groups, with the biggest beneficiaries being Americans 25 and under.

However, something curious appears in the 25-44 age group sometime in the late 1980s...

That something was AIDS...

The AIDS epidemic was so bad for about a decade, the disease became the single largest killer of Americans in their prime, surpassing cancer, heart disease, and all other causes of death.

Of all races, however, the AIDS epidemic targeted mostly black men between 25 and 44.

Another curious observation: there has been no progress in mortality for the 45-54 year olds since the late 1990s.

This quandary is further compounded by the reduced mortality of cancer and heart disease - the biggest traditional killers of this age group - over the past several decades.

So what is the offset? Simple - a surge in deaths from two new killers - suicide and drug deaths.

As noted earlier, while until the mid-1990s, gun deaths outnumbered drug deaths, since then the number of gun murders has actually declined, while drug deaths have exploded. As have suicides. Actually perhaps it is time to ba suicides and drugs. Oh wait, somehow the pharma lobby wouldn't be too happy with that.

As for cars, no need to ban those: motor-related deathes have plunged to a record low, even with seemingy everyone texting and driving.

Safer roads, however, have been more than offset by an explosion in suicides, with representatives of the 25-44 age group most likely to take their lives.

Still, despite all of the noted curious patern shifts, the reality remains that most Americans are living longer and dying of natural causes.

If there is any bad news here, it is that as Americans get older they increasingly succumb to such debilitating, age-related diseases as dementia and Alzheimer's. Indeed, while there has been substantial progress in heart disease-related deaths, the total number of deaths in the 75 and older category has remained flat, precisely due to the increasing prevalence of such age-degenrative conditions.

Which means one thing is certain: the amount of spending on Alzheimer's and other age-related diseases is set to soar.

Source: Bloomberg

The topic of High-Frequency-Trading quickly dissolves into a smorgasbord of mnemonics and 'inside-baseball' technical terms - just complicated enough to lose everyone that matters or should care about its implications. Despite the fair-and-balanced defense from the mainstream media business channels (sponsored by the belief in the status quo fair markets that 'America the free' is known for), the fact is that HFT does front-run (perfectly legal under the umbrella protection o Read more.....

The topic of High-Frequency-Trading quickly dissolves into a smorgasbord of mnemonics and 'inside-baseball' technical terms - just complicated enough to lose everyone that matters or should care about its implications. Despite the fair-and-balanced defense from the mainstream media business channels (sponsored by the belief in the status quo fair markets that 'America the free' is known for), the fact is that HFT does front-run (perfectly legal under the umbrella protection of Reg NMS) order flow, but there may be one more wrinkle - one which would cement the Michael Lewis (accurate) allegation that the market is rigged.

Because if as Nanex shows below, there is in addition to everything else the element of timestamp fraud involved in the distribution of NMS "compliant" trading data for Direct Feed-to-SIP matching purposes, this means that not only is the market rigged, but its rigging goes from the very top all the way to the lowliest algo.

What's worse, the rigged system is so embedded there is nothing anyone can do about it, until it just collapses under its own weight: think May 2010 HFT-created flash crash, only without the mirror-image bounce. 

Via Nanex,

Direct vs SIP Data Feed

The animation below shows how a trade or quote sent on an exchange makes its way to the SIP (Securities Information Processor) and a Direct Feed used by High Frequency Traders (HFT). Reg NMS requires that an exchange (A) send data to the SIP (C) as fast or faster than it sends that data to direct feed subscribers (B). Here's the relavent text from Regulation NMS:

Rule 603(a)(2) requires that any SRO, broker, or dealer that distributes market information must do so on terms that are not unreasonably discriminatory. These requirements prohibit, for example, a market from making its "core data" (i.e., data that it is required to provide to a Network processor) available to vendors on a more timely basis than it makes available the core data to a Network processor.

This is the same rule that NYSE broke and was fined $5M by the SEC in September 2012. We have a nice write up summarizing this fine as it applies to the SIP. Unfortunately, this practice continues at other exchanges. In the animation below, note that the information sent to the SIP has to travel significantly farther distances (40 miles vs 1000 feet), on a slower network (1 GBps vs 40 GBps) with a protocol that adds more latency (TCP vs UDP) than the same information sent to the direct feed. Sometimes this latency on the input side of the SIP shows up in SIP data as fantaseconds (a term we coined to describe trades printing before quotes). See this well documented example.

Timestamp Fraud

The animation also shows something that many aren't aware of: the original timestamp gets stripped, and replaced with a fresh timestamp when the SIP transmits it to a subscriber! Watch the timestamp in the box get stripped when it enters, and replaced when it leaves, the circle labeled "SIP Tape A". Keeping original timestamps is crucial for constructing audit trails, or for detecting system delays, which is why it's integral to this solution which allows HFT and non-HFT to coexist.

Understanding the Animation

Reg NMS requires that exchanges provide core data (trades and quotes) to the SIP as fast or faster than direct feeds. In the animation above, that means a trade or quote originating at an exchange (labeled A) must arrive at the SIP (C) no later than it arrives on a direct feed (B).

The animation starts with a trade (or quote) in the symbol "F", timestamped by the exchange at exactly 9:45. One network sends it to direct feed recipients (B) which are all 1000 feet away, and the other network sends it to the SIP (C) which is about 40 miles away. When the trade arrives at the SIP, the timestamp is removed and aggregated with trades from other exchanges (not shown). Finally, at the point where the SIP transmits the trade to a SIP subscriber (blue circle) it gets a new timestamp based on the SIP clock (which could be ahead or behind the original exchange's clock).

This new timestamp, in effect, will hide any delays between the exchange (A) and the blue circle from SIP users. During the flash crash, delays of over 30 seconds occurred in many stocks and were impossible to detect, because of the altered timestamps. Had the original timestamps from the exchange remained, everyone, not just High Frequency Traders, would have been aware they were trading on stale data.

Sending data faster to HFT is against regulations. Period. Changing timestamps is just plain wrong, and one could argue that SIP subscribers are being denied the true timestamp that HFT enjoy. Keep in mind that nearly all brokerage reports on trade execution quality use the SIP and therefore, an altered timestamp.

Nearly 40% of trades are priced based on the SIP - this include practically all retail trades and most dark pools. Even Goldman Sach's Dark Pool is executes based on SIP prices. When SIP prices lock or cross (due to slow input from one of 13 exchanges or even FINRA), it causes internalizers (retail trades) to stop trading until the condition is resolved: a phenomenon made clear during the flash crash.

Furthermore, speed differences between the direct feed and the SIP can lead to other undesirable market behaviors, such as momentum ignition, which have become quite common (we detailed one market-wide momentum ignition event here). Simply put, when prices suddenly move, those who can act earlier (HFT using direct feeds), will profit at the expense of those who cannot, such as internalizers and Dark Pool that are based on the SIP. With nearly 40% of trading based on the SIP, the profitability of this manipulative strategy can be great enough that the cost of inducing price shifts (momentum ignition) is worth the economic and regulatory risk.

Additional Reading

• Is the National Best Bid or Offer (NBBO) being Ignored? A great primer on the NBBO and direct feeds.
• Reg NMS Has Been Rescinded! A rubber-stamped proposal from Nasdaq effectively negates Reg NMS.
• HFT Breaks Speed-of-Light Barrier, Sets Trading Speed World Record. Proof of delays on the input side of the SIP.
• Coexisting without Colocating. A proposal for improving the market for everyone.
• Refuting HFT Claims. Do they really provide liquidity, narrow spreads and lower costs?
• Direct Feed Prices - NYSE's filing with the SEC

Submitted by David Stockman via Contra Corner blog,

I recently pointed out that the Fed’s 5-year campaign to drive the 30-year mortgage rate from 6.5% to 3.3% had accomplished nothing except to touch off another of those pointless “refi” booms which enable homeowners to swap an existing mortgage for a new one carrying a significantly lowe Read more.....

Submitted by David Stockman via Contra Corner blog,

I recently pointed out that the Fed’s 5-year campaign to drive the 30-year mortgage rate from 6.5% to 3.3% had accomplished nothing except to touch off another of those pointless “refi” booms which enable homeowners to swap an existing mortgage for a new one carrying a significantly lower interest rate and monthly service cost. Such debt churning exercises have been sponsored repeatedly by the Fed since the S&L debacle of the late 1980s.

I further noted that this time the Fed had really outdone itself:

During some periods upwards of 80% of new originations were not money purchase mortgages to finance a new home, the declared purpose of interest rate repression, but just refis of existing debt. By resorting to this maneuver to leave more money in the pocket of borrowers each month, our monetary central planners undoubtedly hoped that America’s flagging consumers would buy another flat screen TV, dinner at Red Lobster or new pair of shoes.

The choice of a flat screen TV or mortgage payment ought to be up to the  American people, not the monetary politburo in the Eccles Building. But even within its own terms, the Fed’s massive refi party made no sense. That’s because unless the Fed intended to peg the mortgage rate at artificial, sub-economic levels for all time to come, its refi maneuver could only shift consumer choices and their mix of spending between quarterly GDP reports; it could not generate permanent gains in national output and real wealth.

In fact, the Fed’s interest rate pegging policies amount to an arbitrary transfer of wealth from mortgage investors to mortgage borrowers—and even that is ultimately temporary. Capital markets do eventually, and often violently, reject central bank imposed financial repression—- as they did during the Great Inflation of the 1970s when bond prices plummeted.

So it was evident all along that even the mighty Fed would have to eventually take its thumb off the scales in the treasury market, thereby permitting benchmark interest rates to “normalize”. In that event, mortgage rates would rise and new homebuyers would find themselves spending more on their mortgage and less at the Red Lobster. And on the margin, a higher so-called “cap rate” for residential real estate would mean that housing prices would tend to weaken, not rise. The whole exercise was ultimately a circular delusion.

Even though this cash flow shuffle is perfectly silly, it has been stubbornly pursued by our paint-by-the-numbers Keynesian central bankers because they refuse to acknowledge the reality of “peak debt”—especially in the household sector. Yet only a permanent gain in leverage can cause consumer spending to remain elevated in response to monetary stimulus.

The overwhelming evidence, however, is that America’s shop-till-they-drop consumers have finally dropped. After a forty-year cycle of soaring household leverage ratios, “peak debt” ratios were finally encountered in 2007-2008— and now retrenchment has set in. Accordingly, consumer spending will now have to come solely out of income, not income plus incremental credit drawdowns which fueled the spending party for decades.

Household Leverage Ratio – Click to enlarge

But while peak debt means that the Fed’s entire 5-year money printing spree was destined to fail, it nevertheless has produced massive impacts—–all of them bad or stupid. One of the most crucial is that it generated an artificial refi windfall to the Big Banks which now dominate the home mortgage business. And the profit windfall was a doozy.

Now that financial results for Q1 2014 have been posted, the impact on Big Four financial results can actually be quantified. The four charts below on mortgage originations per quarter during the course of the Fed’s balance sheet expansion binge are the smoking gun.

They show that during the most recent quarter the four banks only originated about $67 billion in new mortgages on a combined basis. That figure is a reasonable proxy for the steady-state condition that would have existed had the Fed not been engaged in a monetary cattle drive to get mortgage rates to the bottom of the valley. That is, had mortgage rates remained at their not unreasonable 2008 levels or oscillated randomly owing to the interaction of supply and demand for mortgage funds on the free market, there would have been no thundering stampede by American homeowners to refi their housing debts.

Accordingly, activity rates in the mortgage operations of the Big Four would have reflected mainly purchase money borrowing by households who were buying a new or existing home. So the difference between the peak mortgage origination rates shown in the graphs and Q1 results roughly measures Bernanke’s gift to the big banks.

On a combined basis, the Big Four originated mortgages at a peak rate of nearly $300 billion per quarter—or $1.2 trillion annually during the period between 2010 and early 2013. So the refi maneuver resulted in up to a 5X gain in the rate of mortgage originations—a process that gave rise to a triple dip of profits, as previously described:

As summarized in the Fortune article below, the mortgage originators were booking up to $3,300 of up front profit per refi.

And that was just the fee on the transaction—before booking the embedded “gain-on-sale” (often thousands more) when most of this booming mortgage volume was subsequently shuffled off to Freddie and Fannie to be packaged and resold as an MBS. Yes, and at that point, such newly minted “mortgage bonds” did flow back to Wall Street where they were doubtless churned many times over by the dealer side of the banking houses in their endless and remunerative chore of supplying “liquidity” to the homeowners of America….So the banking side of the Fed’s refi churn did well too—–enjoying a triple profit dip along the way.

As can be seen in the graphs, the windfall in some quarters was even more stupendous. The peak rate for Bank of America was 10X its Q1 2014 rate and for Citi it was 9X.

Yet the real story is in the Wells Fargo (WFC) data. During the third quarter of 2012 it originated $100 billion more in mortgages than it did in Q1 this year after the Fed’s refi cattle drive had ended. Stated differently, the geniuses who run Warren Buffet’s favorite bank were handed a  giant book of totally artificial businesses by the Fed— and the consequent opportunity to triple dip from mortgage volumes that amounted to nearly one-half trillion at an annualized rate. WFC had indeed learned at the knee of the nation’s master crony capitalist.

It should not take more than a moments reflection to grasp the hidden function of the massive mortgage churning shown in the left side of these graphs compared to the meager (and more market neutral) levels shown for Q1.Triple-dipping through their massive mortgage churn, the Big Four banks were able to book net income of $20-25 billion per quarter from originations, gain-on-sale and mortgage trading during much of this period.

That means that thanks to Bubbles Ben’s largesse they could pretend that their balance sheets were being repaired. Accordingly, raiding their equity accounts in order to fund dividends and stock buybacks was now fully copasetic.

So Uncle Warren along with his fast money trend followers got their reward in a munificent flow of cash out of bank vaults that had been wards of the state only a few months earlier—as did long suffering executives who’s stock options rose 5X in value owing to all the dividends and buybacks.

Indeed, during fiscal years 2009-2013 Wells Fargo disgorged $59 billion in cash to fund dividends and share repurchases and JPMorgan paid out $65 billion during the same 5-year period. Needless to say, $110 billion of cash flowing toward the bank stocks post at the Wall Street casino had the hedge fund speculators who continuously cycle in and out of these names delirious with excitement.

Likewise, their echo boxes in the financial press were quick to pronounce the all clear. The economy is fixed, the banks are back, and their stocks are soaring—surely proof that all is well. Compared to post-crisis lows, WFC’s stock price was recently at 6X (i.e. $60 per share vs. $10), JPM and BAC were at 3X and even the zombie known as Citi was at 2X.

Yes, some of the banks also raised new capital—especially in the early years after the crisis. But that was mainly a smokescreen to give false credibility to the phony “stress tests” concocted by Turbo Tim and Bubbles Ben. But even giving credit to new equity issued—the net cash distribution by WFC and JPM over the five-year period was just short of $80 billion. Adding in BAC, the Big Three distribution of cash for share repurchases and dividends amounted to nearly $35 billion during 2013 alone.

It goes without saying that this all amounted to a lot of “shareholder friendly” action—even if it did constitute horrid public policy. And Washington’s policy of allowing the same big banks—who allegedly brought the financial system to the brink of Armageddon just 66 months ago— out of supervisory lock-up is indeed horrible.

Every dime of big bank profits—honest earnings and windfall gains like these from the refi contraption alike—should have been sequestered on their balance sheets for years and years to come. Or at least until one of two conditions pertained.

One option would have been for some of them to grow up and become real free enterprises. But that would require  giving up the Fed’s discount window privilege, deposit insurance and undertaking an irrevocable renunciation of any future bailout claims on any agency of the state.

In the alternative, their balance sheets could have stayed in sequester during the entire five years since the crisis. This would have permitted retained earnings and capital to pile-up so deep that even the weak-kneed pettifoggers of the beltway would not be panicked into throwing the banks a life line next time they blow themselves up.

Neither option was chosen, obviously. Instead, while the Fed’s entire mortgage refi gambit did nothing for Main Street–except to confer cash flow windfalls on the less than 15% of  households that  actually did the refi— it did accomplish wonders on the Wall Street side.

Not only did it confer massive capital gains on speculators like Warren Buffet and the bank management teams who brought us the financial crisis, but it also amounted to a regulatory get out of jail free card.

Yet what was the all-fired hurry in Washington to open the flood gates to bank dividends and stock buybacks. Supposedly, that was to pepper the market for bank stock—so that they would raise new capital on their own.

Really? In our financialized economy and crony capitalist policy regime there is apparently no need for more bank capital. As was well demonstrated in 2008-2009, when push comes to shove the state treasury will be raided.

In the interim, its all about the secondary market. That is, goosing the price of existing stock certificates held by gamblers who scooped them up at the bottom and management teams who got themselves issued more options after Bubbles Ben pronounced the all clear.

Hint: it's not designer clothes, shoes, bags or watches.

And some additional explanation from the World Gold Council:

Read more.....

Hint: it's not designer clothes, shoes, bags or watches.

 

And some additional explanation from the World Gold Council:

The Chinese traditionally regard gold as a form of money. Indeed, the character for gold in Mandarin (jin) is also a synonym for money. This is an important fact when it comes to the motivations behind the purchase of jewellery. Asian buyers of plain, 22 or 24 carat jewellery have no doubt in their mind that they are buying gold as well as an object of beauty that can be worn. The perception of value is very important in markets such as India and China where plain, very high carat or ‘pure gold’ articles bought on low-mark-ups comprise the majority of gold jewellery consumption. As such, the level and direction of local gold prices usually have an important bearing on jewellery consumption. This was very clear in 2013 when in April of that year the sudden slump in prices triggered an extraordinary wave of buying in China. Consumers perceived this as a unique opportunity to exchange renminbi for gold at a very favourable rate. It was also of course a chance to bring forward planned purchases for gifts or weddings, especially as the consensus was that prices were bound, eventually, to move a good deal higher.

 

World Gold Council consumer research indicates that consumers remain very positively disposed towards ‘pure gold’ jewellery. It might be thought that the disappointing price trend in the second half of 2013 had undermined this optimism as well as the public’s desire to purchase ‘pure gold’ jewellery. This does not seem to be the case. An extensive consumer survey conducted towards the end of 2013 on behalf of the World Gold Council illustrates how China’s population continues to view ‘pure gold’ jewellery as a form of money, with little indication that this traditional attitude will change any time soon. Asked whether they agreed with the statement that 24 carat gold jewellery "...is as much an investment as it is a fashion item” no less than 80% of the sample agreed, while only 4% disagreed (16% held no view either way). Agreement levels were strong across all respondents. Moreover, support for future demand is strong: in a separate survey of over 10,000 Chinese consumers, 76% of those aged between 18 and 27 also affirmed ‘pure gold’ jewellery’s investment status. And the majority of respondents planned to maintain or increase their spending on 24 carat gold jewellery over the next 12 months (44% and 35% respectively.

h/t @RudyHavenstein

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Submitted by Simon Black via Sovereign Man blog,

In the Land of the Free, people grow up hearing a lot of things about their freedom.

You're told that you live in the freest country on the planet. You're told that other nations 'hate you' for your freedom.

And you're told that you have the most open and fair justice system in the world.

This justice system is supposedly founded on bedrock principles-- things like a defe Read more.....

Submitted by Simon Black via Sovereign Man blog,

In the Land of the Free, people grow up hearing a lot of things about their freedom.

You're told that you live in the freest country on the planet. You're told that other nations 'hate you' for your freedom.

And you're told that you have the most open and fair justice system in the world.

This justice system is supposedly founded on bedrock principles-- things like a defendant being presumed innocent until proven guilty. The right to due process and an impartial hearing. The right to counsel and attorney-client privilege.

Yet each of these core pillars has been systematically dismantled over the years:

1. So that it can operate with impunity outside of the law, the federal government has set up its own secret FISA courts to rubber stamp NSA surveillance.

According to data obtained by the Electronic Privacy Information Center, of the nearly 34,000 surveillance requests made to FISA courts in the last 35-years, only ELEVEN have been rejected.

Unsurprising given that FISA courts only hear the case from the government's perspective. It is literally a one-sided argument in FISA courts. Hardly an impartial hearing, no?

2. The concept of 'innocent until proven guilty' may officially exist in courts, but administratively it was thrown out long ago.

These days there are hundreds of local, state, and federal agencies that can confiscate your assets, levy your bank account, and freeze you out of your life's savings. None of this requires a court order.

By the time a case goes to court, you have been deprived of the resources you need to defend yourself. You might technically be presumed innocent, but you have been treated and punished like a criminal from day one.

3. Attorney-Client privilege is a long-standing legal concept which ensures that communication between an attorney and his/her client is completely private.

In Upjohn vs. the United States, the Supreme Court itself upheld attorney-client privilege as necessary "to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law. . ."

It doesn't matter what you're accused of-- theft. treason. triple homicide. With very limited exceptions, an attorney cannot be compelled to testify against a client, nor can their communications be subpoenaed for evidence.

Yet in a United States Tax Court decision announced on Wednesday, the court dismissed attorney client privilege, stating that:

"When a person puts into issue his subjective intent in deciding how to comply with the law, he may forfeit the privilege afforded attorney-client communications."

In other words, if a person works with legal counsel within the confines of the tax code to legitimately minimize the amount of taxes owed, that communication is no longer protected by attorney-client privilege.

Furthermore, the ruling states that if the individuals do not submit attorney-client documentation as required, then the court would prohibit them from introducing any evidence to demonstrate their innocence.

Unbelievable.

While it's true that attorney-client privilege has long been assailed in numerous court cases (especially with regards to tax matters), this decision sets the most dangerous precedent yet.

With this ruling, government now has carte blanche to set aside long-standing legal protections and even deny a human being even the chance to defend himself.

Naturally, you won't hear a word about this in the mainstream media.

But it certainly begs the question, what's the point of even having a trial? Or a constitution?

When every right and protection you have can be disregarded in their sole discretion, one really has to wonder how anyone can call it a 'free country' any more.