The bulk of today’s discussion is a continuation of Monday’s podcast where we were focusing on the FinCEN investigation. This is a branch of the Treasury Department that is responsible for collecting, maintaining, and investigating suspicious activity reports, (SARs). These SARs are filed by banks when they identify unusual and suspicious transactions. The main goal is to detect money laundering and then stop it. However, as we gather through the BuzzFeed News investigation – this process is not so straight forward. In fact, many banks know and/or have a good idea that they are transacting with a money launderer, such as drug trafficker, but they continue to do business. The fees that are made from these transactions are apparently too good to give up; and furthermore, even if federal prosecutors should take action against the bank(s), the common punishment is a fine. This fine is of course paid by the shareholders and not the executives who are aware of these business dealings, nor the board directors who have a fiduciary duty to look out for the shareholders. Since this is the reality – crime does pay for these banks and other actors.
The BuzzFeed article that we continue to make our way through, highlights several of the world’s largest banks and the activities they have been involved with. These actions can range from working with Russian organized crime figures, to drug and human traffickers, to being the bank for convicted Ponzi scheme felon, Bernie Madoff. The amount of money involved is nothing short of astonishing and along with it the banking fees that are derived and the trading desk profits that are made with these funds. So long as this kind of money can be made and the corresponding punishment(s) so limited, then it can be logically concluded that these actions will continue, because crime, unfortunately, for these figures, does pay. Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #Banks #Fraud #Bailouts #USA #Gold #Inflation #Debt #Liberty #Revolution
Major documents that are housed within the Treasury Department’s, Financial Crimes Enforcement Network, or FinCEN, have been released. These files are not to be released, nonetheless, various news agencies and investigative journalists got their hands on them and have been going through them for over a year – connecting the dots and painting a picture. The story it tells is one where between 1999 and 2017, banks flagged over $2 trillion in suspicious activity transactions. The suspicious activity reports or SARs that are filed by banks and sent to FinCEN, are done so for the purpose of identifying and tracking illegal behaviors. These actions can range from the financing of terrorism, drug operations, Ponzi schemes, kleptocratic regimes, and the like. These documents will be on the level of previous releases, such as the Snowden files, Panama Papers, and various Wikileaks reports.
Pertaining to finance, this of course has a global reach and engulfs the largest banks in the world, which despite filing the SARs, are still able to collect fees off of these transactions, and rarely if ever have to pay fines. Further, executives and board members are rarely if ever held to account either criminally or civilly. And should fines be paid, then it’s the shareholders who flip the bill and not the managers who knew about these activities and/or allowed them to continue. It is no surprise that the Treasury Department is not pleased that some of these documents are likely going to be published, and express their concerns on how such a release can compromise national security and law enforcement interests. This is the typical line that is given from the government – “hiding” behind national security. There is no question that legitimate national security and law enforcement activities are of concern and should be. However, how many times have we heard this as justification from the government, only to learn that they did so to conceal wrongdoing within various departments and to infringe on the peoples’ Constitutional rights? If we’re supposed to be a government, of, by, and for the people, then how can the people make the right decision(s) in electing our political leaders, and focus on the most important issues, if the people are intentionally left in the dark?
This story will not go away anytime soon. However, what does come into question, is how much attention it will get on the mainstream media, within the Congress, within the White House, and within the public. So do not be surprised if there is an attempt to “sweep this under the rug.” Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #Banks #Fraud #Bailouts #Debt #USA #Recession #BuzzFeed
As Q2 earnings season gets underway, major banks reported today. With the likes of JP Morgan Chase, Wells Fargo, and Citigroup, there were a couple common threads throughout. First, all banks expect that the worst of the economic fallout is yet to come as they amend their forecasts from the prior quarter to a more bleak outlook for the months ahead.
As such, their collective loan loss provisions take us back to levels not seen since the GFC. Despite this negative bit of news, however, with respect to JP Morgan and Citigroup, their trading desks did phenomenally well. Gee, we wonder why that could be? Oh, that’s right – thank you Federal Reserve and all your banana republic funny money. The industries hardest hit when it comes to the banks are retail, real estate, and oil and gas. The very industries that we have been discussing here for months. It was also quite interesting to hear from the banks that all of the “stimulus” spending and other policies that have been implemented has simply delayed the inevitable – protracted economic growth. The problem of course with this is that there is no free lunch. So all we get are a few extra months at the expense of trillions of dollars that we do not have, only to end up where we would’ve ended up anyways, but now with a higher debt load. Only the arrogance and fraudulent behavior of bureaucrats, politicians, and central bankers could have come up with such a scheme. Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #Bailouts #Debt #Depression #USA #Recession #EndTheFed #Gold #Liberty #Silver
As we kick-off Q1 earnings of 2019, we must pay close attention to the top-line and the bottom-line. This may be obvious, but what we’re referring to is the following: are firms beating on earnings, but missing on revenues? If this is the case, are companies laying people off in order to contain costs? And if top-line growth is missing, then how can we be in the midst of the “greatest economy ever?” If this is the case, this may signal trouble ahead as corporations are debt-ridden and the piper wants paid.
It was only a couple of weeks ago that the Chairman of the Federal Reserve gave his scheduled press conference following the Federal Open Market Committee’s (FOMC), meeting. As was broadly anticipated by the markets, the Fed decided to take a “wait-and-see” approach to the overall economy and thus the committee’s actions regarding interest rates and the Fed’s balance sheet. The stance on being patient was most welcomed by market participants. It is the opinion of The Kapital News that the market is akin to a drug addict and the Fed – the drug dealer.
Only a
couple of months ago, the major indices of the US markets entered correction
territory as defined by a 10% decline. This was then followed by a further
decline that put these indices in bear market territory or reaching a 20%
decline. Well it should have came as no surprise that the addicts, coming down
from their highs, would throw a tantrum, a hissy-fit, whatever you want to say,
to get the attention of their dealer – they sure succeeded! Not only did the
Fed come under pressure from the markets, but also from President Trump. There
were immediate calls for the Fed to reverse course or at least stop what they’re
currently doing. So, what is or was the Fed doing?
For well
over a year, the Fed has been discussing increasing the Effective Federal Funds
Rate from its extreme policy of low interest rates coupled with quantitative
easing (QE). This interest rate is used by banks for overnight lending
purposes. Banks with excess reserves will lend money to banks in need of
additional liquidity in order to satisfy their daily reserve requirements. This
rate has been zero-bound since 2008 during the financial crisis. This also went
by the term ZIRP or Zero Interest Rate Policy for those “in-the-know.” It has
gradually been increasing and we stress the word gradually, for the past couple of years. It currently stands at
2.27%. Even though the Fed has been broadcasting for some time now that it
intended to “normalize” interest rates as well as to continue to reduce the
size of its balance sheet – the markets declined rapidly during Q4 of 2018.
This now
raises serious questions for the broader economy at large and the financial
markets. What credibility does the Fed have? Will the Fed do a 180 and cut
rates and embark on a new leg of QE? If the economy is so vibrant, then why do
minute interest rate increases of 25 basis points negatively shock the markets
and economy? If the economy is so strong, then why is the Federal government
running near $1 trillion deficits? These questions need to be asked and they
need to be answered!
With
respect to their credibility – it is the opinion of this author that they have
NONE!!! We’re supposed to believe that a team of 200 PhD economists at the Fed,
in addition to any analyst the Fed wants input from, that they all got it
wrong?! They broadcast that the economy is doing well and thus it is
appropriate to increase rates and continue with their balance sheet run-off and
then BAM, markets decline, the economy is now not so vibrant, and the global
economy is suddenly slowing. They didn’t see this coming?! What the hell are
they looking at?! Or does it become more of a question between who does the Fed
work for, which leads to the title of this article.
During
his press conference, Chairman Powell made it clear that the Fed works for the
American people. This commentary simply asks, What Americans, Mr. Powell? In
our recent podcast, A
Stock Market Divided Cannot Stand, we stated that the Fed is not
helping Americans who are attempting to save. With low interest rates, savers
are not earning any interest on what savings they may have. This has been true
for a decade of significantly flawed monetary policy. Economies are not built
on the backs of over extended consumers and over leveraged banks and
corporations, but rather on the savings and investments of market participants.
We continued with older Americans and how many of them live on fixed-incomes,
and in some instances, a very-fixed income. The mechanics of QE is by
definition an inflation generating process. Once this liquidity makes its way
through the economy, the effects of this inflation (money-printing) are felt.
This has adverse effects, especially on older Americans on fixed incomes as their
cost of living outstrips their rise in income – should they even experience an
increase to their incomes.
Their policies of ZIRP and QE are fundamentally flawed for middle income and lower income Americans. Yet how have these policies faired for the wealthy, corporations, banks, and the government? Well you guessed it – they have done extremely well! The markets have reached new all-time highs and given the wait-and-see stance by the Fed, they may make even greater highs this year. The wealthy who own the majority of financial assets – stocks, bonds, real estate, have seen tremendous gains to their portfolios and net worth. This author does not demonize success, for he is an ardent proponent of free market capitalism. Yet, money printing is not capitalism! Therefore, these gains to the wealthy, the corporations, and the banks have come at the expense of middle- and lower-income Americans. Corporations have used this funny-money to engage in financial engineering never seen. One such activity relates to share buybacks. The amount of share buybacks has gone to increase earnings artificially as opposed to organically, since some of this activity has occurred due to access to cheap money. The same holds true for the increasing of dividends and leveraged loans, which are loans that will be used to pay-off other loans. Many of these financial gimmicks can translate into higher stock prices – and they have. This then translates into higher compensation for C-suite executives as their earnings may be tied to stock price performance. Starting to get the picture?
Now onto how the government benefits. The US government’s stated national debt is nearing $22 trillion. This does not include the unfunded liabilities that increase this number several times. If one were to look at the amount the US pays on interest payments alone, which is over $300 billion per annum, one must then ask, how much longer can this be sustained? Well, so long as the Fed keeps interest rates low and/or returns to another round of QE, which is the Fed purchasing Treasuries, then Uncle Sam may be able to keep this charade going. However, if the Fed were truly concerned with macro-events, then they should be ringing the alarm bells telling Congress and the President that this is unsustainable and public finances must be dealt with. They do not do this because this would require someone to be an adult in the room and to stand up and be a true leader. We do not have such leaders in our current government nor have we for many years. The problem this creates is two-fold. First, it continues to kick the proverbial can down the road and thus these problems will only get worse and that much more difficult to resolve. Secondly, there does not appear to be any concern that interest rates may take on a mind of their own. In other words, markets may look at the financial health of the federal budget, or lack thereof, and say, in order to lend money to Uncle Sam, we’re going to need a higher return. Therefore, despite the efforts by the Fed, they may one day soon fall on deaf ears. When one looks at Treasury rates, especially the 10-year Treasury, it must be understood that many other rates, such as mortgages are closely linked. If rates were to rise either by decree from the Fed, or worse by the market, the downstream effects will make 2008-2009 look like a walk in the park. If rates remain low and/or the Fed should do a 180 and lower rates and/or embark on a new round of QE, these problems will only get pushed further down the road. Once these debts come due, this too will make 2008-2009 look like a walk in the park. Damned if we do and damned if we don’t – great going Fed.
We have done this to ourselves. Living beyond our means and not holding ourselves and our political leaders accountable has serious and significant costs. Soon, we’ll all be paying the price one way or the other. A return to free market capitalism is the solution, yet the common voices and the loudest voices call for policies quite the contrary. The United States should have the best economy in absolute terms, not in relative terms – the best-looking girl at the dance isn’t good enough. It’s time to wake up and demand change or we’ll be awoken from a nightmare only to realize, we’re not dreaming.
