“Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS)lagged behind peers in a key measure of capital strength used by U.S. regulators to stress- test their resiliency in a severe recession.

The three firms submitted more-optimistic estimates of their capital strength and ability to avoid losses on trading and lending than Federal Reserve projections released yesterday for the 18 biggest U.S. banks. Of the three, the gap was widest for Goldman Sachs, which predicted that its Tier 1 common ratio may fall as low as 8.6 percent in a sharp economic downturn, compared with the central bank’s 5.8 percent estimate.

The disparities — including a gap of 1.3 percentage points for JPMorgan — raise the risk that some banks may have been too aggressive while seeking Fed approval to distribute capital to investors through dividends and share repurchases. The companies must maintain Tier 1 common ratios of at least 5 percent under their capital plans. The Fed is set to release the results of those requests next week.

“If you came in with rosier assumptions than the Fed’s own baseline, then you’re definitely at risk of failure” in the capital request, said Christopher Whalen, executive vice president at Carrington Investment Services LLC. “The Fed is going to push back on those banks.”

Spokesmen for JPMorgan, Goldman Sachs and Morgan Stanley, all based in New York, declined to comment.

Disputes Fed….”

Full article

“Federal Reserve Bank of St. Louis President James Bullard said the central bank probably will press on with its asset purchases as contained inflation expectations give it time to continue the quantitative easing.

“I think it’s going to be a while on the QE program,” Bullard, a voting member of the policy-making Federal Open Market Committee this year, said in a television interview today on “Bloomberg Surveillance” with Tom Keene and Mike McKee. “We’ve got a lot of room to maneuver here.”

Opponents of the unprecedented asset purchase program that aims to boost growth and hiring have said it could spur inflation. Bullard said that a greater concern now, with price increases below the Fed’s target, is that “we need to defend our inflation target from the low side.”

The FOMC is debating how long to continue $85 billion in monthly purchases of Treasuries and mortgage bonds. The committee, which meets March 19-20 in Washington, has said it will keep the main interest rate near zero as long as the unemployment rate remains above 6.5 percent and inflation isn’t projected to exceed 2.5 percent.

Bullard also said today that the most recent drop in new claims for unemployment benefits is an “encouraging” sign for the economic recovery….”

Full article

“The consumer sector has held up in recent months, with consumer spending rising 0.2 in January from December.

But it’s a tale of two countries: the wealthy, infused with stock market wealth and improving home values, are keeping the sector afloat, while the non-wealthy, struggling with a payroll tax increase on top of a bleak job market and higher gas prices, are dragging it down.

“People in the top half of the income distribution are doing just fine. They’re spending enough to keep the economy moving,” Mark Zandi, chief economist at Moody’s Analytics, tells The Wall Street Journal.

“But the lower half is having a difficult time keeping their heads above water.”

The impact of the wealthy is stronger than the impact of the non-wealthy. That’s because the top 20 percent of the country in terms of income do about 38 percent of the spending, which equals nearly as much as the entire bottom 60 percent of the income spectrum, according to Labor Department data cited by The Journal.

But it’s unclear if the wealthy can keep things going on their own, The Journal explains. Already economic growth has slowed to just 0.1 percent in the fourth quarter. And the sequester could tip the economy in the opposite direction.

Ryan Sweet, another economist at Moody’s, has a mixed view for consumer spending going forward. “It’s going to be touch and go for the consumer for the next few months,” he tells Bloomberg.

“The consumer is going to be able to support the recovery, but they’re not going to be able to take it” higher, he says.

Read more 

“Famed short-seller Jim Chanos, the founder of Kynikos Associates, said on CNBC’s “Squawk Box” this morning that he shorted Herbalife last year.

“We were short last year,” Chanos said, adding, “We were short at a price.”

He currently has no position in Herbalife, which is a multi-level marketing firm that sells nutrition products.

He explained that he’s “not crazy” for this multi-level marketing model. He’s said that before.

He also added that he thinks Bill Ackman is “correct in his analysis in that when your business is based, in effect, on selling an overpriced commodity to your customers or you distributors you ultimately have a flawed business down the road.” ….”

Full article

SOURCE 
NYSE

NASDAQ

AMEX

“While that new all-time high may just be a number — the market didn’t undergo a magical transformation upon hitting pre-crisis levels — experts say such milestones can have a psychological impact on investors. As the Dow reclaims lost ground, some investors are reflecting on how far they’ve come since the financial crisis. Some are still trying to bounce back, but many have recovered what they lost in the crash of 2008. The average participant in a 401(k) plan broke even between 2007 and 2010, and many savers are now better off than they were in 2007, according to Vanguard. The average account balance was $86,000 at the end of 2012, 10% more than the average balance at the end of 2007. (Of course, those higher balances include investor contributions, not just market gains.) See: What’s the big deal about the 2007 highs?

But for all the investor excitement around market milestones, investing pros say these thresholds don’t really move markets too much up or down. While investors often get swept away when the market is near key thresholds — causing them to ignore important factors like stock valuations — analysts say monetary policy and economic growth drive markets. Indeed, some investing pros are skeptical about how long the run will last. See: Druckenmiller says ‘it’s going to end very badly.’

Here’s a look back at some of the Dow’s biggest milestones, what happened next — and what lessons were learned…”

Full article

“The Dow Jones industrial average rose to a new all-time high Tuesday … sort of.

The record that everyone is talking about is in nominal terms and doesn’t take into account the impact of inflation, which has increased more than 10% during the past five years, according to the government’s Consumer Price Index (CPI).

If you factor that in, the blue chip index is actually still about 11% below its all-time inflation adjusted high, which was set in January 2000, according to data from Ned Davis Research. And it’s still about 9% below the level it was at in October 2007….”

Full article

“While the Dow Jones Industrial Average closed at an all-time high Tuesday, at 14,253.77, Charles Nenner, founder and head of research at the Charles Nenner Research Center, says the Dow will plunge to 5,000 by 2017 or 2018.

“We’re in an inflationary period and it’s very difficult to make money,” he told CNBC. “I still have a target of 5,000 for the Dow that we should reach in 2017 or 2018, and then we’ll get a huge bull market so it’s best just to go to sleep with your money until then.”

Instead of wondering how much they can make, investors should be asking, “How much can I lose?”

Nenner predicts a “catastrophe” not only for equities, but for bonds and the pound as well. He warned that there were hardly “any bright spots” in asset markets, until 2018.

His description of the U.K. currency was as of one of the worst performers of 2013 as it dropped below $1.50 on March 1, with the slump expected to continue into the summer.

“We’ve hit $1.50, and if we get close to $1.49, then we’ll go to $1.44, and if we get to that point before July, it could go even lower,” he said. “Austerity is not going to work in Britain.”

He added that even if the Bank of England introduces further quantitative easing this week, it would not support the currency.

Nenner also said that European stocks would fall this year. “You should take chips off the table. … The [market] insiders were buying [in 2012] and now the insiders are selling.”

Gold also doesn’t escape Nenner’s scrutiny.

Read more

“Federal Reserve Bank of Philadelphia President Charles Plosser said the central bank should slow the pace of its bond purchases because the potential costs from more stimulus outweigh the benefits.

“We should begin to taper our asset purchases with an aim of ending them before year-end,” Plosser said in a speech prepared for delivery in Lancaster, Pennsylvania. “With interest rates already extremely low and the Fed’s balance sheet large and growing, monetary policy is posing risks to the economy in terms of financial stability, market functioning and price stability.”

The Federal Open Market Committee is debating how long it should continue $85 billion in monthly purchases of Treasurys and mortgage bonds aimed at boosting economic growth and reducing 7.9 percent unemployment. Chairman Ben S. Bernanke and Vice Chairman Janet Yellen in speeches this month affirmed a commitment to record stimulus pushing the central bank’s balance sheet beyond $3 trillion.

Even with the easing, the economy expanded just 0.1 percent in the fourth quarter amid the biggest drop in defense spending since the closing years of the Vietnam War.

“Beneath the very weak headline number, there were some signs of improvement in consumption, business investments and residential investments,” Plosser said. “Thus, there is reason to be somewhat optimistic for the coming quarters.”

Growth Accelerates…”

Full article

“BEIJING—The president of China’s giant sovereign-wealth fund warned Japan against using its neighbors as a “garbage bin” by deliberately devaluing the yen, joining a growing number of Chinese officials sounding alarms about a potential currency war.

“I would hope that it doesn’t do that as a responsible government,” Gao Xiqing, president of China Investment Corp., said in an interview with The Wall Street Journal on Wednesday. He was responding to questions about worries among some finance ministers and central bankers that the new Japanese government would devalue its currency to boost exports at other countries’ expense.

“Treating the neighbors as your garbage bin and starting a currency war would not only be dangerous for others but eventually be bad for yourself,” Mr. Gao said on the sidelines of the annual meeting of China’s parliament, the National People’s Congress.

Japanese policy makers, including Prime Minister Shinzo Abe, have stressed that the Bank of Japan’s monetary easing measures are aimed at beating deflation, not weakening its currency.

“BOJ’s monetary policy is not at all targeted at pushing down the currency,” Mr. Abe’s pick for the new BOJ governor, Haruhiko Kuroda, said on Monday at a parliamentary confirmation hearing. “By taking a bold monetary easing policy and exiting deflation as soon as possible, that’s something good not only for Japan, but for the economies of Asia and the rest of the world.” …”

Full article

“Investors in U.S. bank stocks may be in for a volatile ride over the next two weeks as the Federal Reserve releases results of its annual stress tests of bank capital in two steps.

Late on Thursday, the agency is expected to reveal how much capital 18 large banks would maintain under a hypothetical severe economic downturn. A week later, the Fed plans to disclose how the banks would have fared if they had first spent some of their capital buying back shares or paying higher dividends.

Among the banks that will be closely watched are Bank of America and Citigroup, which have stumbled in past tests and have had quarterly dividends stuck at a penny per share since the financial crisis.

If banks pass Fed muster, they will be allowed to go ahead with plans to increase payouts and repurchase more shares. Last year, the Fed disclosed all of the information on the same day.

During this year’s one-week gap, bankers are worried that their stocks could face volatile swings as analysts and investors try to guess how much capital banks will be able to return to shareholders over the next year. Stocks could also fluctuate if banks exceed or miss expectations for how they will score in the first phase of the test, the bankers said.

“I’d much rather get all the information in one fell swoop,” said Frank Barkocy, director of research at Mendon Capital Advisors, which invests in bank stocks. “It does create some air of uncertainty, and uncertainty usually results in volatility.”

Barkocy said it’s also possible that information could leak out during the interim week. The Fed will provide banks with preliminary information about their capital plans this week, but it’s considered confidential supervisory information….”

Full article

“We’ve noted that margin debt at the NYSE has been rising steadily as stocks have advanced in recent months. Like the stock market, total margin is close to all-time highs.

BofA Merrill Lynch technical analyst Mary Ann Bartels writes in a note to clients that cash balances in those margin accounts have fallen to such a low level that they are now generating a sell signal not seen in three years.

Here is Bartels:

Net Free Credits from the NYSE Margin Debt data shown in the chart below is essentially a measure of cash levels in margin accounts. Current levels have fallen to levels that have generated a tactical sell signal based on a 2-standard deviation Z-Score reading….”

Full chart & article

“One of the main indicators I rely on for the cyclical view of the markets is the Orcam Recession Index (which I update in the research regularly).   It’s helped me keep from bring bullish into each of the last two recessions (though a bit early in the last one) and has kept me from being too bearish in the last few years despite working under the understanding of economic weakness due to the Balance Sheet Recession.

What’s it saying right now?   Well, not much has changed since I started loudly saying that the ECRI and others were wrong about their 2011/12 recession calls.  It’s still trending lower, but historically, the index hasn’t turned negative until about 6-12 months before a recession hits.   The current reading of 1.5 is pretty healthy considering the average reading over the 30 year lifetime of the data is about 0.85….”

Full article and chart

“The stock market’s roar to record highs Tuesday reflected the Federal Reserve’s massive easing campaign, not the strength of the U.S. economy, says financial commentator Robert Wiedemer, best-selling author of “Aftershock.”

The Dow Jones Industrial Average rallied 125.95 points, or 0.9 percent, to 14253.77, surpassing its previous record closing high of 14,164 set in October 2007.

“Fed money-printing is important” for the stock market, Wiedemer tells Newsmax TV. “The economy isn’t doing particularly well. This isn’t the economy of 2007; we all remember the boomy times then.”

Indeed, the economic recovery is “100 percent fake,” he says. “It’s built on Fed money-printing and government borrowing. Both are at record levels. That’s absolutely crucial to this market rally.”

The Fed has added more than $2 trillion to its balance sheet over the past five years through quantitative easing and has pushed short-term interest rates down to near-record lows.

Still, the economy expanded only 0.1 percent in the fourth quarter. “And more important for companies reporting earnings, much of the world is in recession, and that’s affecting a lot of S&P 500 earnings,” says Wiedemer, a regular contributor to Financial Intelligence Report, the flagship investment newsletter of Newsmax Media….”

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“$118 Million Dollars An Hour

That is how much money the Federal Reserve Bank of the United States is creating as you wake, work or sleep. That is $85 billion a month and the stuff must go somewhere. It pours out like sugar upon the markets, each market, every market and it is no wonder that the American stock markets are hitting new highs. The spice must flow.

In the bond markets it is low interest rates and compression, a vice closing in progress, as each sector of the Fixed Income markets grinds closer and closer to Treasuries. It is real, it is not an avarice, but it is also the most manipulated market in the history of our country and something that could not be accomplished in other responses to Recessions because the world’s central banks had never worked in this kind of collective action before. It is not earnings and it is not technicals; it is just money and vast quantities of it that come pouring out of Washington each day. The United States found manna from Heaven.

The initial call had been for Inflation, even Hyper-Inflation from some well-known thinkers. It has not happened and the reason, I postulate, isbecause the underlying economy is in far worse shape than the numbers indicate or most think. The earnings at corporations also rely upon this injection of capital and so the whole boats floats but the underpinnings are shaky, risky and fraught with danger. Any hint of curtailment by the Fed throws out tremors as everyone wonders for how long this will go on and will the rising tide turn to a flood and upset the American boat. It is a very good question. The other possibility is an “Event;” some shattering moment that punctures the hull and sends the whole enterprise into a waterspout where the boat is sucked up into a vortex that will certainly not be Oz.

I play the game. The Rule is to win and not to be eventually right and lose your capital during the process. The compression in bonds has been an absolutely winning hand and in many cases a better bet than equities have been. One of the interesting reasons for this has been the structure of bonds as compared with equities or preferred stocks. Bonds accrue interest every day while dividends are paid quarterly with no accrual. Consequently if you are trading bonds and taking advantage of what you can the accrual part of the equation can add to your winnings in a substantial fashion when interest rates are this low….”

Full article

“Since 2011, Lakshman Achuthan of the Economic Cycle Research Institute (ECRI) has been taking a lot of heat for his controversial call that the U.S. economy would fall into a recession.

In an apperence with Bloomberg‘s Tom Keene last November, Achuthan clarified that based on the four official recession indicators considered by the NBER — the folks who date recession — the U.S. fell into recession in July 2012. He also said we would know that the U.S. fell into recession by the end of 2012.

Since then, the ECRI head had been off the radar.

Today, Achuthan emailed to Business Insider a brand new presentation titled “The U.S. Business Cycle in the Context of the Yo-Yo Years.”

In 17 pages, Achuthan makes his best effort to defend his recession call….”

Full article 

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NYSE

NASDAQ

AMEX

“Haruhiko Kuroda will have limited options for aggressive easing if he’s confirmed as central bank governor as more Japanese government bond purchases heighten the risk of a market bubble, a former BOJ policy board member said.

“Kuroda will hit the wall of reality,” Atsushi Mizuno, vice chairman at Credit Suisse AG in Tokyo and a member of the BOJ board from 2004 to 2009, said in an interview today. “Increased bond buying would cause over-dependence on the BOJ and that’s not healthy for the market. I see the risk of a JGB bubble.” …”

Full article

“The Dow Jones industrial average may finally hit its record high Tuesday.

Recent gains have left the Dow less than 40 points away from its all-time closing high if 14,164.53, and only about 70 points below its record intraday high of 14,198.10. Both were set in October 2007.

The S&P 500 is also within 2.6% of its record closing high of 1,565.15, also reached in October 2007.

U.S. stock futures were narrowly firmer ahead of the open.

Stocks have had a strong start to 2013. Even with a largely uneventful, February, all three indexes are still up between 7% and 8% so far this year.

Investors will also be looking for any signs of progress in talks to end the budget impasse in Washington, known as sequester. The Obama administration has started making $85 billion of cuts and some federal workers have started getting furlough notices.

U.S. stocks shrugged off the budget fight to end higher Monday….”

Full article

“Ben Bernanke’s policy of low interest rates is meant to boost lending. But a new study shows that as banks have gotten bigger, the Fed has become less powerful.

Ben Bernanke

FORTUNE — Call it Bernanke’s folly. Or quagmire. Or both.

A new study, which was published on Monday by the National Bureau of Economic Research, suggests that the Federal Reserve’s policy of using ultra-low interest rates in order to encourage lending, might be doing the opposite.

This is, of course, not what Federal Reserve chairman Ben Bernanke has maintained. Ever since the financial crisis, and even a little before it, Bernanke has pushed the Fed to do whatever it can — quantitative easing, Operation Twist, making promises — to keep rates low. Bernanke has said that low interest rates would make it cheaper for people and companies to borrow, and so they will….”

Full article