Swiss Shock Starts Stock Slide

The Markets

While most Americans were munching on burgers, hots and potato salads Monday, the rest of the world was working, and stocks took a major beating in exchanges across the globe. Both Asian and European markets suffered 3-6% declines, capped by a huge fall in the German DAX, as financial woes continue to spread globally, but are hitting the Eurozone especially hard.

On Monday, Asian markets were mixed, but all except the UK and Swiss markets finished in the red.

The workweek in the US began with news that the Swiss National Bank (SNB) decided to peg its "safe haven" currency at 1.20 Euros to stave off a recession and halt the strengthening of its currency that has proceeded at a swift pace since the collapse of Lehman Bros. in 2008.

"The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development," the SNB said in a brief statement. "The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities."

"Unlimited quantities" indeed. The Swiss are prepared to match the Euro and US dollar print for print as the debasement of fiat currencies has now reached a new level of madness/stupidity/desperation (take your pick).

The Swiss move sent the US dollar soaring to two month highs (75.92), and dropped the 10-year note to an historic low yield of 1.91%. The 10-year ended the day at 1.98%.

The trading day began with steep declines, with the Dow off by 308 points at its lows and the NASDAQ shedding 66 points just prior to 11:00 am EDT. After that, it was an uphill climb with a huge ramp job in the final 30 minutes of the session, on either short covering or blithe spirits, though the former seems more appropriate.

With trading on the light side, cutting the losses on the major indices was probably easy work for the criminal Wall Street cartel. Shares will likely be dumped by Thursday when a troika of events - one by Ben Bernanke, one by President Obama and one in Europe by German Chancellor Angel Merkel when she must quell a threatened revolt in her own parliamentary bloc when the Bundestag begins debating the controversial expansion of the European rescue fund, which increases Germany's share of guarantees to up to €211bn (£184bn) from a previous €123bn – about two-thirds of the annual federal budget. Merkel will be first, prior to the open of US markets, followed by Bernanke in Minnesota, with President Obama's highly-anticipated, nationally-televised speech to introduce his jobs program to joint session of congress slated for 7:00 pm, hoping to avoid a conflict with the opening of the NFL season. The Green Bay Packers play the New Orleans Saints at 8:30 pm.

One sector that did not participate in the afternoon rally off the lows was financial, with bank stocks being hit hard once again. Bank of America pared some of its earlier losses, closing at 6.99, down 26 cents, but below the 7.14 price of 700,000 warrants recently offered to billionaire Warren Buffett as a sweetener to his $5 billion investment in the flailing bank. Message to Warren: Don't be in a hurry to own a big chunk of another bank.

Dow 11,139.30, -100.96 (0.90%)
NASDAQ 2,473.83, -6.50 (0.26%)
S&P 500 1,165.24, -8.73 (0.74%)
NYSE Composite 7,148.13, -102.60 (1.42%)
NASDAQ Volume 1,740,810,000
NYSE Volume 5,077,949,500
Combined NYSE, NASDAQ Advance - Decline: 1942-4640
Combined NYSE, NASDAQ New highs - New lows: 32-451
WTI crude oil futures: 86.02, -0.43
Gold: 1873.70, -26.60
Silver: 41.96, -0.91

Idea: Ready to get really scared?

How about a report by UBS, which outlines the frightening aspects of Euro dissolution, i.e., the end of the EMU (European Monetary Union) and the resulting chaos, civil strife and even civil wars. Full text below.

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Then there's this post on a little-known blog called Nathan's Economic Edge, from March 20, 2010, which concludes, via the U.S. Treasury Z1 Flow of Funds report that the diminishing marginal productivity of debt (a well-understood, but not widely-circulated concept) reached debt saturation sometime in 2009, thus adding new debt, as the Fed and the federal government are always so eager to do, but the Tea Party wants stopped ASAP, produces negative results, as in lower GDP.

What that means is that the era of fiat currencies, without backing of any kind, is backfiring in a big way. The more money the Fed or the government throws at the problem only makes it worse and hastens the eventual implosion of the currency. However, these things take a long time to work themselves out, but we may be only years away from financial Armageddon.

Government Sues 17 Banks Over Faulty Mortgage Backed Securities

This news broke early on Friday, but details were just coming in as the markets were closing.

The Federal Housing Finance Agency is the conservator for failed federal GSEs, Fannie Mae and Freddie Mack. The agency seeks a total of $196 billion in damages in state and federal courts from the named defendants, including some $24.853 billion from Merrill Lynch and First Franklin Financial (owned by Bank of America). All of the charges are made in connection with false or misleading representations and warranties made to Fannie and Freddie by the banks.

The list is pretty much a who's who of the sub-prime and general mortgage crisis which pushed the global economy to the brink of disaster back in 2008, including such notables as Goldman Sachs, Bank of America, JP Morgan Chase, Citigroup, Countrywide Financial (now part of Bank of America), Deutsche Bank and others.

American Banker points out that the largest exposure - $57 billion - belongs to Bank of America (BAC) because the bank not only sold $6 billion of MBS to Fannie and Freddie, but the figure grows larger when factoring in the damages charged against Merrill Lynch and Countrywide, both acquired by BofA during the financial crisis. JP Morgan Chase has to deal with $33 billion in claims, including those of Bear Stearns and Washington Mutual, both of which were taken over by JP Morgan Chase.

Below is the press release in which the agency lays out the charges. Here is a link to the individual cases.

FHFA

While most of the American public must be cheering this news, it's about the worst that could happen to the TBTF banks, being that their reputations and balance sheets are both on shaky footing. The hardest hit will surely be Bank of America, which is being sued by virtually the whole planet, including AIG and USBancorp.

The litigation involved in these cases will likely take many months, if not years, to settle and will cost the banks dearly in legal costs, which are already taking their tolls on profits.

In addition to the banks, a multitude of individuals are charged with various violations of securities laws, though none of the CEOs - such as Jaime Dimon, Dick Fuld or Lloyd Blankfein - are among the defendants. Obviously, the government is going after the lowest-hanging fruit in an attempt to garner public support by going after "bad guys."

This is a developing story with far-reaching implications for the global economy. MoneyDaily will stay abreast of events as they develop.

With any luck, we may witness actual "perp walks" as the lower-level employees implicate the top rung of the banking elite. The thought of seeing Jaime Dimon or Lloyd Blankfein in leg irons and handcuffs is almost too delicious to consider.

Stocks Slide on NFP ZERO JOB GROWTH; FHFA Sues Big Banks

The Markets

Once the August Non-Farm Payroll report was out, US equities were as good as done. The BLS reported - for the first time since February, 1945 - that no new jobs were created in the month. That's right. Zero. None. Squat.

Adding to the general jobs plight and blight in the US, July and June gains were revised lower. July was down to 85,000 from 117,000 previously reported and June figures showed that employers added just 20,000 jobs in June, not 46,000, for a net loss of 58,000 jobs from previously-believed figures.

Off of that kind of defining news on the economy, stocks dove at the open and stayed down all day long, finishing near their lows.

The other major market mover was news that the Federal Home Finance Agency (FHFA) - the agency tasked with overseeing the conservatorship of Fannie Mae and Freddie Mac - was in the process of suing as many as 17 major banks over faulty underwriting on - you guessed it, didn't you? - soured mortgage backed securities (MBS). This news was breaking all day, though details were trickling in at the market's closing bell.

The banks being sued were Bank of America, Merrill Lynch (a subsidiary of BofA) for $22.4 Billion, Citigroup, Barklays, Nomura, among others.

Dow 11,240.26, -253.31 (2.20%)
NASDAQ 2,480.33, -65.71 (2.58%)
S&P 500 1,173.97, -30.45 (2.53%)
NYSE Composite 7,250.73, -192.73 (2.59%)
NASDAQ Volume 1,582,149,000
NYSE Volume 4,363,518,500
Combined NYSE & NASDAQ advance-decline: 1075-5448
Combined NYSE & NASDAQ New highs - New lows: 20-147
NYMEX WTI crude oil futures: 86.45, -2.48
Gold: 1882.50, +57.10
Silver: 43.25, +1.75

The big winners on the day were the prudent and astute conservative investors holding gold and silver, both of which were boosted significantly as the fear of a looming recession rises and problems in Europe escalate over the second Greek bailout.

Basically, anybody who doesn't believe either a) we're already in a recession; b) the first recession never actually ended; or c) we're about to go into a recession, simply has not been paying attention, or, is paying attention to the globalist media's consistent pleadings that the economy is doing just fine.

With the nitwits in Washington more intent on getting re-elected than fixing real problems, the United States, and by inference, the rest of the world is sinking deeper and deeper into a global depression which likely won't be resolved without drastic measures (war, currency debasement, bank failures on a grandiose scale).

With that in mind, let's party the three-day weekend away with the following:

IDEA: Don't Google it, Bing it!

Most of us use Google for searches, but Bing is better. Not only does Bing offer more options, better video and image coverage, but they have a rewards program by which users can accumulate points and eventually redeem them for some nice items (it takes a while, but if you search a lot, they add up).

What does Google offer besides a lot of ads next to search results? Nothing.

Try Bing. It's better.

Stocks Down in Advance of August NFP Numbers

The Markets

All of the major indices ended well into the red on Thursday, and for good reason. Initial Unemployment Claims came in at 409,000 for the most recent reporting period, and that number will be revised higher (as it always is) next week.

Here's the kicker. Continuing claims came in at 3735K, well higher than last week's reported 3641K, though that number was revised higher, to - get this - 3753K, which is 112,000 more. So, one would think, "gee, that continuing claims number is down 18,000 this week," but one would be wrong, because this week's continuing claims number will no doubt be revised higher next week.

The fact that the Bureau of Labor Statistics (BLS), which compiles these reports, is so god-awful bad at keeping numbers straight causes consternation, not only in investors, but it spreads to reporters, analysts and eventually, consumers, who are forced to digest whatever the government decides to barf up on any given week.

No wonder consumer confidence and overall approval ratings for congress and the president are so dismally low. The statistics they present are scarcely believable.

The government also reported that second quarter productivity fell by 0.7% (Should we believe this? Were a lot of people Facebooking instead of working?), while unit labor costs rose by 3.3%. That last number is not believable. How, pray tell, can labor costs rise when the economy is stalled out and unemployment is rampant? It goes against the grain of all accepted business wisdom. In a soft labor market, wages stagnate or decline, and especially so when productivity drops.

The takeaway from this is that either we have a bunch of numbskulls running American businesses (not likely, though at the top of the chain, maybe) or American businesses are about to meet a serious margin squeeze, from higher raw materials and higher labor costs. While the latter argument makes a little bit of sense on the surface, we're reminded that the figures are from te government and thus, highly suspect, and, it's an amalgamation across industries. The truth is somewhere in between: certain sectors of the economy are going to be harmed, soon.

That was all the markets dealt with before the bell. As usual, they shrugged it off to some degree, and stocks sank in the early going, until the August ISM index came out with a reading of 50.6 at 10:00 am EDT and produced the most interesting market response of the day (maybe the week). The Dow, for instance, which was down about 35 points, did a 120-point about face and made what would be the highs of the day within minutes (like two or three, seriously). The computers were whizzing, for sure.

The amusing aspect of the market's rise on this number is that the 50.6 number is not very good and was down from an unrevised 50.9 in July. But the market was looking for 48.5, which would have set off alarms, because anything under 50 on the ISM signals contraction, i.e., recession. So, we're not going into a recession unless, um, productivity falls off, or maybe costs rise, or orders slow, or the ISM revises that 50.6 to 49.9 next month?

Don't breath hard on any economic data. You might cause a recession.

But, that was it. Everything was downhill the rest of the session, especially after Goldman Sachs cut their August non-farm payroll estimate in half, from a gain of 50,000 jobs to just 25,000, right around noon. Everything fell off the table at that point.

Considering that job growth of 50,000 for August would, in and of itself, be a horrible number, half of that is terrifyingly bad, and so, we can only expect a major sell-off should Goldman's forecast be even close to the mark. It should be noted that Goldman Sachs has a horrible record on predicting the NFP number, so there's some hope that they're wrong, though not much.

Dow 11,493.57, -119.96 (1.03%)
NASDAQ 2,546.04, -33.42 (1.30%)
S&P 500 1,204.42, -14.47 (1.19%)
NYSE Composite 7,443.46, -84.93 (-1.13%)
NASDAQ Volume 1,771,030,250
NYSE Volume 4,722,466,000
Combined NYSE & NASDAQ Advance - Decline: 1643-4877
Combined NYSE & NASDAQ New Highs - New Lows: 54-38
WTI crude oil futures: 88.93, +0.12
Gold: 1826.30, +2.10
Silver: 41.59, +0.08

Comment: Today the fire was lit on the pile of rubble collected on Wall Street. Tomorrow's NFP number, if it's anything under 70,000, will be like gasoline. (MoneyDaily predicted +25-35,000 last week)

Idea: Grow your own.

There's literally nothing new about suggesting you grow some of your own vegetables in your own yard. The problem is that hardly anybody does so, we being conditioned by the Kleptocracy to buy all fresh produce from local supermarkets. Oddly enough, prices at roadside stands or farmer's markets have been roughly the same as in the supermarkets, though farmers tell us that may have been true early in the season, and should correct in September.

It's not as easy as just throwing down some seeds and watching them grow and later in the season picking the lush, juicy, ripe produce. It takes time, care and some good luck from Mother Nature. Ask any full-time farmer. It's work, but the results can be highly rewarding in good, fresh fruits and/or vegetables which costs almost nothing. The added benefit in tending to your own garden is that it gets one closer to nature, making one "grounded" so to speak.

Crops will grow almost anywhere in America. You only have to know which ones will grow best, and when, in your neck of the woods. The internet is a wealth of information on gardening.

Good luck.

Battling the Kleptocracy - Part 1

Editor's Note: In an effort to provide some clarity for regular people (working types or entrepreneurs, with incomes under $100,000, often well under) on the rigors of the modern economy, this blog will devote itself in part to coverage of markets (stocks, bonds, commodities), but more to an understanding of how the US economy, since the 1980s, has become unfair to the middle class, biased against wage earners and how it promotes a gross inequality of class, income and privilege, favoring the ultra-wealthy.

It is the intent of the author to offer constructive advice to millions of Americans who unknowingly and unwittingly submit to this poorly-conceived construct of economy and methods and practices to thwart and escape the clutched of a debt-driven fiat money environment.

The "Battling the Kleptocracy" series shall be composed of posts containing two parts: first, an overview of the day's events on the markets; second, an informational section of practical ideas to help foster a counter-cultural movement away from the status quo.

The Markets

Despite the usual non-eventful numbers from the ADP private employment report (+91,000 for August, on expectations of 100K) and another downward drift in the Chicago Purchasing Managers' Report (PMI) reading of 56.5, from 58.8, stocks blew out in the morning and drifted lower throughout the day. Only a desperate, late rally saved the major indices from posting negative returns on the session.

Dow 11,613.53, +53.58 (0.46%)
NASDAQ 2,579.46, +3.35 (0.13%)
S&P 500 1,218.89, +5.97 (0.49%)
NYSE Composite 7,528.39, +64.39 (0.86%)
Combined NYSE/NASDAQ advance-decline: 3936-2651
Combined NYSE/NASDAQ new highs - new lows: 66-19
NASDAQ Volume 1,986,423,750
NYSE Volume 5,188,927,500
WTI crude oil futures: 88.85 -0.05
Gold: 1824.50 -10.60
Silver: 41.58 +0.23

Comment: Blah. The usual churn in the face of overwhelming debt pressure and stagnation in developed nations.

Idea: Get your money out of Bank of America

There once was a time when banks were trusted pillars of society, mostly local and involved in the communities they served. With the advent of computerization, globalization and the rise of a mendacious class of ultra-wealthy supra-nationalists, circa 1980, the repeal of Glass-Steagall (1999) and the overwhelming force of mass media and central bank control (Federal Reserve Act of 1913), the common notion that banks served communities was no longer valid.

Not to put too fine a point on it, but banks have probably always been rooted in deception and money-grubbing, but banking and legislative activity of the past 30 years provides an excellent background to the root evil of the Kleptocracy, which, loosely defined, is a societal/economic system which routinely skims wealth from those who least can afford it, to the benefit of those who need it the least.

In 2008, Bank of America, under the guidance of the since-discredited Ken Lewis, purchased Countrywide Financial Corporation, at the time the largest originator of residential mortgages in the United States.

Guided mainly by greed and without proper due diligence, Bank of America blundered into (or possibly under influence and threats from the Federal Reserve) what will go down in history as one of the worst corporate deals of all time. The purchase price for Countrywide was reported at $4.0 billion, though some analysts, notably those employed by Bloomberg, put the figure at $2.5 billion, as BofA was already carrying some of Countrywide's portfolio. The bank also purchased once-heralded brokerage firm, Merrill-Lynch, in another bad deal, at the height of the financial collapse of 2008, though that purchase is a topic for another time.

Countywide's portfolio of mortgages turned out to be so rotten, loaded with no-doc loans, NINJA (No Income No Job Application) loans and other variable-rate and exotic mortgage flavors that BofA soon had a mess on their hands, though the executives of the bank were loathe to mention that fact to shareholders. Thus, we experienced the sub-prime meltdown, the financial crisis and more, that continues to this day.

Bank of America was insolvent and only was salvaged via underhanded loans, guarantees and bond repurchases from the Federal Reserve. Their losses on soured mortgages are so deep and so broad, that even these infusions cannot and will not prevent Bank of America from falling into deep default at some point (probably already happened a few times already) and eventually being broken up or forced into bankruptcy.

The bank is the largest in the United States as measured by deposits, but the costs of litigation from the Countrywide deal will eventually sink it. The following are stories from just the past three days, with more to come.

It is advisable to pull all funds from Bank of America as quickly and as quietly as possible. They do not abide by any laws, much as a cornered wild animal might act in rash and irrational manners. They are doomed, and with them, other financial institutions will be ruined or significantly impaired. You do not have to face ruin along with them. Put your money in a local credit union or sound local or regional bank. Avoid other mega-banks like JP Morgan Chase, Wells-Fargo and Citi. They are part of the counterparty risk which will be destroyed when Bank of America falls off the shelf.

Bank of America hid the potential of an AIG lawsuit from regulators and investors, knowing about the possibility of an extensive and expensive legal undertaking, as far back as January of 2011.

CEO Brian Moynihan is selling off parts of the bank piecemeal in order to raise cash.

On Tuesday, Bank of America announced plans to shed another piece of its mortgage business.

The $8.5 billion settlement which the bank secured in federal court is being challenged on a number of fronts, including the FDIC, FHFA, a homeowner's group, the NY state Attorney General and even Goldman Sachs. The settlement was supposed to put to rest claims on over $170 billion in bad loans, but has since fallen apart due to these and other objections. Litigation, which BofA hoped to have settled in one fell swoop, will likely take years and add billions to the bank's continuing mortgage miasma.

Additionally, a 2008 ruling is being challenged by the state of Nevada which would void an agreement on loan modifications which Nevada officials say the bank did not honor.

And, just today, US Bancorp sued Bank of America for $1.75 billion over loans it purchased in 2005, citing faulty underwriting.