ART CASHIN: If America Is Anything Like History’s Great Civilizations, Then This is The Beginning of The End

“…..The continuing loud cautions of “Don’t Tread On My Entitlements”, and the imminence of a majority of voters not paying any taxes, recalls yet again the rather prophetic but apparently fictitious quote of Alexander Tytler.  According to many internet sources, Tytler is reputed to have published this stunning quote in a book called “The Decline and Fall of the Athenian Republic” (ironically said to have been published in 1776 when something interesting was happening across the pond).

“A democracy cannot exist as a permanent form of government.  It can only exist until the voters discover they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising them the most benefits from the public treasury, with the result that a democracy always collapses over a loss of fiscal responsibility, always followed by a dictatorship. The average of the world’s great civilizations before they decline has been 200 years. These nations have progressed in this sequence: From bondage to spiritual faith; from spiritual faith to great courage; from courage to liberty; from liberty to abundance; from abundance to selfishness; from selfishness to complacency; from complacency to apathy; from apathy to dependency; from dependency back again to bondage.” …”

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“Here’s an interesting point via SocGen that I haven’t seen many people discuss.  Notice in the chart below how commodities have stopped responding to the QE effect while equities have not:

“The effect of QE on commodities (if any) vanished earlier than for equity markets. During each of the first
two quantitative easing phases carried out by the Fed, commodities appreciated by over 25%. However, following the announcement of QE3 in Sept. 2012, commodity prices declined (-7% for the CRB index), a reminder that they remain largely driven by economic cycles rather than central bank actions (Gold being the notable exception). In fact, equity markets now seem to be the only asset which benefits from abundant central bank liquidity.

Conclusion: The all-time high reached by US equity markets last week can be attributed to the fact that the only major asset class which benefits from the current “risk-on” mood of investors is equities in developed market.” …”

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Interesting commentary from David Rosenberg here regarding negative real rates and the tendency for excess to occur.  I’d say this time is slightly different in that the low real rates of the past tend to coincide with better credit conditions, but this time might find a different enabler in QE’s supposed “wealth effect”.  Here’s Fed Governor Jeremy Stein first:

“For example, a prolonged period of low interest rates, of the sort we are experiencing today, can create incentives for agents to take on greater duration or credit risks, or to employ additional financial leverage, in an effort to “reach for yield.” An insurance company that has offered guaranteed minimum rates of return on some of its products might find its solvency threatened by a long stretch of low rates and feel compelled to take on added risk. A similar logic applies to a bank whose net interest margins are under pressure because low rates erode the profitability of its deposit-taking franchise….”

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“DETROIT (AP) — General Motors is recalling nearly 34,000 Buicks and Cadillacs in the U.S., Canada and elsewhere to fix a problem with the automatic transmissions.

The recall affects Buick LaCrosse full-size cars and Cadillac SRX crossover SUVs from the 2013 model year.

The company says a software problem can cause transmissions to unexpectedly shift into sport mode. That can override any slowing effect from the transmission, increasing the risk of a crash….”

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“DETROITFederal safety regulators are investigating reports of fuel leaks in about 250,000 Mercedes-Benz E-Class cars.

The National Highway Traffic Safety Administration and Mercedes have received 533 complaints from owners about a strong odor of gasoline, mainly after refueling. The agency says fuel may be leaking from the upper part of the gas tank….”

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Preferential treatment for a tycoon by the head of the IMF is being investigated. Today investigators raided the Paris apartment of Christine Lagarde…

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“NEW YORK (MarketWatch) — Treasurys fell on Wednesday, pushing yields higher for the first trading session since the controversial deposit levy was announced as part of Cyprus’s bailout package, as the market looked ahead to the conclusion of the Federal Open Market Committee meeting.

Federal Reserve Chairman Ben Bernanke is scheduled to speak in a press conference at 2:30 p.m. Eastern.

Yields on the benchmark 10-year U.S. Treasury note 10_YEAR +2.21%  rose 4 basis points to 1.95%. Yields move inversely to prices and one basis point is one one-hundredth of a percentage point.

Yields on the 30-year bond30_YEAR +1.31%  rose 3 basis points to 3.16% and yields on the five-year note5_YEAR +2.68%  rose 2 basis points to 0.802%.

Uncertainty in Cyprus increased the safe-haven bid for Treasurys as the Cypriot parliament rejected the deposit tax on Tuesday, a requirement for the 10 billion euro bailout. While the rejection of the bailout could lead to a collapse of the Cypriot banking sector and an exit from the euro zone, the European Central Bank said Tuesday it would provide liquidity.

Investors will closely watch the FOMC statement and Bernanke’s address for any discussion about the risks associated with quantitative easing. The Fed purchases $85 billion in Treasury and mortgage debt each month and has linked the length of its bond-buying program to a substantial improvement in the labor market. Recent economic data, including the latest jobs report, suggest the U.S. economy is improving and continued progress could lead to an earlier-than-expected slowing of asset purchases….”

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“There may not have been any major market malfunctions recently, but mini flash crashes still happen nearly every day.

Stock exchanges don’t publicly release data about these mini crashes — when a stock rapidly plunges then rebounds — but most active traders say there are at least a dozen a day.

Dennis Dick, a proprietary trader at Bright Trading in Detroit, said he stopped tracking them because they happen so frequently.

While none have been as disruptive as the “flash crash”of 2010, or the ones that marred the IPOs of the BATS exchange and Facebook in 2012, they highlight the fragility of markets increasingly dominated by high frequency traders who count on fancy algorithms to make a quick profit.

So far this year, these mini crashes have taken place in shares of Apple (AAPL, Fortune 500), Berkshire Hathaway (BRKA, Fortune 500), insurance broker Aon Plc (AON,Fortune 500) and apparel maker Hanesbrands (HBI).

On Jan. 25, Apple’s stock plummeted nearly 2% in the last minute of trading, with roughly 1 million shares changing hands. That’s nearly 10 times the volume during any other time that day, and the move briefly wiped out as much as $7 billion of Apple’s market value. Apple managed to recover more than half of that in the final few seconds of trading.

Other publicly traded companies have experienced even more extreme swings. On Feb. 5, Hanesbrands’ stock dropped 3% in less than half a second before quickly rebounding…..”

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“BEIJING—Suntech Power Holdings Co., STP 0.00% once the world’s largest supplier of solar panels, is involved in bankruptcy-court proceedings in the eastern Chinese city of Wuxi, the company said.

Suntech said Wednesday that a group of eight Chinese banks filed a petition for insolvency and restructuring of its main operating subsidiary in China in the Wuxi Municipal Intermediate People’s Court in Jiangsu province.

Wuxi Suntech told the court it wouldn’t file an objection to the petition, Suntech said, adding that the court will decide whether to accept the petition in the next few days. If the petition is approved, Suntech will continue to produce solar products to meet customer orders, Suntech added….”

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“Applications for U.S. home mortgages tumbled for a second week in a row last week as interest rates continued to climb to seven-month highs, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 7.1 percent in the week ended March 15.

The index of refinancing applications dropped 8 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, slipped 3.9 percent….”

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“JPMorgan Chase has reached a $546 million settlement with the trustee liquidating the failed broker-dealer unit of MF Global, a court filing showed, an amount that will help repay the brokerage’s customers.

As part of a settlement reached with James Giddens, the trustee who is tasked with liquidating MF Global Inc, JPMorgan will pay $100 million that will be made available for distribution to former MF Global customers.

JPMorgan will also return more than $29 million of the brokerage’s funds held by the bank, while releasing claims on$417 million that was previously returned to Giddens.

“The settlement agreement resolves claims by the trustee and customer representatives against JPMorgan that would otherwise result in years of costly litigation between the parties with an uncertain outcome,” Giddens said in the filing….”

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“U.S. mortgage finance company Freddie Mac is suing more than a dozen banks for losses from the alleged manipulation of the benchmark interest rate known as Libor.

Bank of America Corp, JPMorgan Chase,UBS and CreditSuisse are among the banks named as defendants in the lawsuit.

Freddie Mac, which invested in mortgage bonds and swaps tied to U.S. dollar Libor, claims the banks colluded to rig the benchmark from 2007 to 2010, according to the complaint, which was filed March 14 in U.S. District Court for the Eastern District of Virginia.

The banks worked together to artificially lower the U.S.dollar Libor “both to hide their institutions financial problems and to boost their profits,” the complaint said. The lawsuit seeks undetermined damages.

Freddie Mac and Fannie Mae, the two government-controlled mortgage companies, may have suffered more than $3 billion in losses as a result of Libor manipulation, according to a memo obtained by Reuters in December.

The memo was sent to the Fannie and Freddie’s regulator,the Federal Housing Finance Agency, by its inspector general.The watchdog urged the regulator to consider legal action.

Bank of America, JPMorgan Chase, UBS, Credit Suisse and other banks did not immediately respond to calls for comment or declined to comment.

More than a dozen banks have been under scrutiny by authorities in the United States, Japan and Europe over claims they altered the Libor…..”

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People are going to do what they must to survive….

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ADBE, ABC, AGCO, AAPL, BBY, BBRY, COF, CAH, DE, PM, PLCM, SPRD, SYMC, PAY, WAG, WAC, WFM, ZNGA,

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In Play ,

On the Wires 

“FedEx Corp. (FDX) plans deeper capacity cuts to Asia after lowering its 2013 earnings forecastamid a widening customer shift to cheaper overseas shipments.

Profit in the fiscal year through May will be $6 to $6.20 a share, down from an earlier forecast of as much as $6.60, the Memphis, Tennessee-based shipping company said in a statement today. Both the projection and fiscal third-quarter profit trailed analysts estimates.

FedEx, an economic bellwether because it moves goods as varied as medical supplies and auto parts, is in the midst of a a $1.7 billion restructuring to compensate for customers moving away from the fastest, most lucrative deliveries. Starting in April, it will decrease capacity to and from Asia and put low- yielding shipments in less expensive networks, Chief Executive Officer Fred Smith said in the statement.

“Our lower-than-expected results for the quarter and reduced full-year earnings outlook were driven by third-quarter international revenues declining approximately $100 million versus our guidance, primarily due to accelerating customers preference for lower-yielding international services,” Chief Financial Officer Alan Graf said in the statement.

Analysts had estimated FedEx, operator of the world’s largest cargo airline, would post full-year profit of $6.35, the average in a Bloomberg survey. FedEx fell 3.3 percent to $103 at 8:07 a.m., before the start of regular trading in New York.

Shares Decline…”

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“Lennar Corp.’s LEN -0.39% quarterly net profit surged, catapulting results way above Street estimates as the homebuilder recorded strong revenue growth buoyed by higher deliveries and prices, while orders and backlog both recorded double-digit percentage growth.

The results come as the home-building sector enters the all-important spring selling season, which has the potential to be the strongest in several years. Builders are benefiting as buyers leave the sidelines, and interest rates remain low, making owning a home more affordable than renting in many markets. Lennar—which is considered one of the sector’s strongest players by some analysts—has consistently reported double-digit revenue growth over the past several quarters amid a broad housing market recovery….”

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“Adobe Systems Inc. (ADBE) reported first-quarter 2013 earnings of 22 cents per share, beating the Zacks Consensus Estimate of 20 cents. Adjusted earnings per share exclude one-time items but include stock-based compensation expense.

Revenues

Adobe’s total revenue was $1.008 billion, down 12.6% sequentially and 3.6% year over year. However, reported revenues were slightly above management’s expectation range of $950 million to $1.0 billion attributable to increased adoption of Adobe’s Creative Cloud.

Products generated 67.0% of Adobe’s revenues and were down 16.4% year over year. Subscription revenues comprised 22.0% of total revenue, up 53.4% sequentially and Services & Support brought in the balance, increasing 19.1% year over year.

Revenues by Segment…”

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“(Reuters) – Real estate investment trust American Realty Capital Properties Inc said it offered to buy unlisted Cole Credit Property Trust III Inc for $5.7 billion in cash and stock to create the largest publicly traded REIT in the net lease sector.

The offer is valued at more than $9 billion including debt, American Realty Capital said in a statement on Wednesday.

Net lease is an agreement where the tenant pays property taxes, building insurance and maintenance in addition to rent. Such properties are usually rented out for commercial purposes to retailers, supermarkets and restaurants.

American Realty Capital asked the trust to call off its planned acquisition of its external adviser, Cole Holdings Corp, saying its offer would provide immediate liquidity to Cole Credit shareholders.

American Realty Capital said it had earlier expressed interest in the company but was surprised not to have received any response….”

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