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Egypt’s Mursi Refuses to Step Down, Clashes Ensue Sending Black Gold Higher

“Egypt’s military said it was ready to sacrifice itself in the fight against “fools,” while President Mohamed Mursi vowed to defend his legitimacy with his life as time ran out on the army’s ultimatum to end the political crisis.

The showdown is pitting the country’s first democratically elected president against detractors who claim he’s sold out the goals of the 2011 uprising against Hosni Mubarak to advance Islamist interests. Clashes between his supporters and critics left at least 18 dead and 619 wounded over the past 24 hours, said Ahmed El-Ansari, deputy head of the national ambulance service.

“If the price of safeguarding legitimacy is my own blood, I am ready to sacrifice it,” Mursi said in a late night televised speech. “There is no alternative to constitutional legitimacy.”

The army said July 1 it would impose its own plan if Mursi didn’t end Egypt’s political crisis and meet the people’s demands within 48 hours. The state-run Al-Ahram newspaper summed up the stakes in a headline reading: “Today: Removal or Resignation.”

The unrest helped to send West Texas Intermediate crude oil prices above $100 a barrel for the first time since September.

Ahram newspaper reported, without saying where it got the information, that if Mursi didn’t resign, he may be forced to leave office. The military plan would also include replacing the country’s constitution and installing an interim government to be headed by a military leader, Ahram said.

Sacrifice Our Blood

“We swear to God that we will sacrifice for Egypt, and its people, our blood against all terrorists, extremists or fools,” the military’s top brass said in a statement posted on a Facebook page affiliated with the Supreme Council of the Armed Forces….”

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WTF? Bank of China Denies Default

“Either things in China are now very serious (and Jean-Claude Juncker has been hired as chief propaganda officer), or the BOC hired Erin Callan as CFO. Either way, for now at least, the Bank of China “is fine”…”

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Hit the Bricks Geezer

“While the overall labor participation rate has slid in recent years, senior citizens are increasingly returning to the labor force, thanks to losses in their investment portfolios and financial uncertainty, says economist and author Mark Skousen.

The labor force participation rate for those 65 and older rose to 24.4 percent in May from 21.6 percent in June 2008, government statistics show.

“Retirees that used to be the idol class, if you will, are now the new working class,” Skousen tells Newsmax TV in an exclusive interview. “They’re continuing to work.”

Watch our exclusive video…”

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Bank Cash Hoard Tops $1 Trillion at the Fed, Another Problem For the Fed to Unwind

“The amount of money banks have at the Fed recently reached 13 digits, for the first time ever.

chart-fed-cash-hoardFORTUNE — U.S. banks now have $1 trillion at the Federal Reserve. It’s far more than they have ever had before, and it could be a big problem.

And it’s a new one. Before the financial crisis, the amount of cash banks kept idle at the Fed rarely topped $25 billion, which in terms of a multi-trillion dollar banking system is peanuts. But shortly after the start of the financial crisis, as a move to help the banks and save the economy (or perhaps the other way around), the Fed began paying interest on money banks deposited at the Fed.

Money flowed in. It has been rising ever since, but the rate of increase has picked up recently. In the first three months of this year, bank reserves at the Fed rose nearly $200 billion, or 25%, after barely budging in 2012. The amount passed the trillion dollar mark for the first time in April. Still, all that extra cash has done little to boost lending, which dropped in the first quarter.

MORE: Ultra-low interest rates are making bonds unsafe

“Many institutions have still seen deposits at the central bank balloon as more liquidity has piled up on their balance sheets in recent years,” analysts Marshall Schraibman and Robb Soukup of bank research firm SNL Financial wrote in report last week.

In the past month or so, interest rates have begun to rise, mostly driven by concern of what the Fed might do and when, now that the economy is improving. But most of that discussion has been around quantitative easing and the Fed’s $3.3 trillion bond portfolio. But what’s not talked about too often is the other hurdle the Fed faces in exiting its stimulus program — how to deal all the cash the banks have parked at the Fed, and what happens to that money.

In part, the two issues — the bond portfolio and the bank cash — are sides of the same coin. When the Fed buys bonds, it’s handing over money to someone, be it a bank or investors. And some of that money undoubtedly ends up deposited at a bank, which has to put it somewhere. When the Fed decides to sell off its bond portfolio it will be essentially taking that cash back, and, poof, the bank deposits will disappear.

MORE: Jamie Dimon’s $5 billion bet against bonds

That’s why some see it as a nearly a non-issue. “Reserves don’t even factor into my model,” says Laurence Meyer, a former Fed governor and head of economic forecasting firm Macroeconomic Advisers. “That’s not what causes inflation and not how the Fed stimulates the economy. It’s a side effect.”

Nonetheless, Meyer says Fed economists have drawn up plans to deal with the growing cash hoard. Many think a massive sell-off of the Fed’s bond portfolio might be too disruptive to the bond market, causing rates to skyrocket, slow the economy and potentially do massive damage to the banks. As such, the Fed is likely to hang onto its bonds until they mature, which could take years. That means the extra cash at the Fed could be around for long after the economy has fully improved.

That may make it harder to rein in inflation with future interest rate hikes. The Fed currently pays banks an interest rate of 0.25% on their deposits, which now amounts to $2.5 billion a year. Some have already called that a back-door bailout for the banks. Although the banks have to pay some of that money out to the FDIC in order to cover their higher deposit insurance….”

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Banks Serve as a Gateway to Fraud

“The pitch arrived, as so many do, with a friendly cold call.

Bruno Koch, 83, told the telemarketer on the line that, yes, of course he would like to update his health insurance card. Then Mr. Koch, of Newport News, Va., slipped up: he divulged his bank account information.

What happened next is all too familiar. Money was withdrawn from Mr. Koch’s account for something that he now says he never authorized. The new health insurance card never arrived.

What is less familiar — and what federal authorities say occurs with alarming frequency — is that a reputable bank played a crucial role in parting Mr. Koch from his money. The bank was the 140-year-old Zions Bank of Salt Lake City. Despite spotting suspicious activity, Zions served as a gateway between dubious Internet merchants and their marks — and made money for itself in the process, according to newly unsealed court documents reviewed by The New York Times.

The Times reviewed hundreds of filings in connection with civil lawsuits brought by federal authorities and a consumer law firm against Zions and another regional bank that has drawn even more scrutiny, First Bank of Delaware. Last November, First Delaware reached a $15 million settlement with the Justice Department after the bank was accused of allowing merchants to illegally debit accounts more than two million times and siphon more than $100 million.

The documents, as well as interviews with state and federal officials, paint a troubling picture. They outline how banks profit handsomely by collecting fees while ignoring warnings of potential fraud and, in some instances, enabling dubious merchants to prey on consumers….”

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Fun With Drones

“A review of classified US intelligence records has revealed that the CIA could not confirm the identity of about a quarter of the people killed by drone strikes in Pakistan during a period spanning from 2010 to 2011.

According to a purportedly exclusive report by NBC News that mirrors findings of an April analysis by McClatchy, between September 3, 2010 and October 30, 2011 the agency’s drone program over Pakistan routinely designated those killed as “other militants,” a label used when the CIA could not determine affiliation, if any.

The review by NBC News paints both a confusing and troubling picture of the CIA’s reported drone strike success, which three former Obama administration officials feared could have missed or simply ignored mistakes.

Of the 14 months worth of classified documents reviewed, 26 out of 114 attacks designate fatalities as“other militants,” while in four other attacks those killed are only described as “foreign fighters.”

Even more irregular are the cases when entry records conflict on the number of those killed, with one such example indicating a drone attack had killed seven to 10 combatants, and another estimating 20 to 22 fatalities.

By comparison, McClatchy’s April review of drone strikes revealed that at least 265 of up to 482 people that the CIA killed during a 12-month period ending in September 2011 were not senior al-Qaeda leaders, but were instead “assessed” as Afghan, Pakistani and “unknown extremists.” Corroborating media accounts show that US drones killed only six top al-Qaeda leaders during the same period.

One key term in analyzing drone strike records are what are known as “signature” strikes, when drones kill suspects based on behavior patterns but without positive identification, versus “personality” strike, which is when drone targets are known terrorist affiliates whose identities are verified.

According to an anonymous senior intelligence official who spoke to NBC, at the peak of drone operations in Pakistan in 2009 and 2010 as many as half of all kills were classified as “signature” strikes. ….”

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FAO and OECD Expect Cheap Food to be a Thing of the Past

“Agricultural prices will climb in the next decade on a combination of higher energy costs, falling productivity growth and rising demand, the OECD and the UN’s Food & Agriculture Organization forecast.

Extended periods of low prices for farm goods, driven by ever-increasing yields and cheap oil, “seem now a feature of a bygone era,” the Organization for Economic Cooperation & Development and the United Nation’s FAO wrote in a joint report on the outlook for agriculture through 2022.

Farm production will grow less rapidly in the future due to limited availability of suitable land, water constraints and rising costs of inputs such as fertilizer, according to the report. Corn and soybean prices rose to a record last year, and have more than doubled from 10 years ago.

“With energy prices high and rising and production growth declining across the board, strong demand for food, feed, fiber and industrial uses of agricultural production is leading to structurally higher prices and with significant upside risk,” the OECD and FAO wrote.

Agricultural production growth is predicted to slow to an average 1.5 percent a year through 2022 from 2.1 percent annually in the past decade, according to the report. That will still beat population growth, with farm output per person advancing by 0.5 percent per annum over the period.

Investment, Technology…”

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The Little Guy Makes a Big Splash

“We’re finally starting to see the small investor chase equity returns.  And they’re just in time for it all after a 150% rally.  According to the most recent AAII investor allocation survey individual investors allocated their portfolios towards the highest equity weighting since September 2007.  Meanwhile, bond allocations are close to the post-crisis lows and well off the 2009 highs when fear peaked

Here’s more via AAII…”

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Synthetic CDOs Make a Come Back to Produce Higher Returns

“Investors are once again clamoring for a risky investment blamed for helping unleash the financial crisis: the synthetic CDO.

In a sign of how hard Wall Street is trying to satisfy voracious demand for higher returns amid rock-bottom interest rates,J.P. Morgan Chase JPM -1.70% & Co. and Morgan Stanley MS -1.46%bankers in London are moving to assemble so-called synthetic collateralized debt obligations.


CDOs give investors a chance to bet on the creditworthiness of a basket of companies. Basic CDOs pool bonds and offer investors a slice of the pool. Synthetic CDOs pool, instead of the bonds themselves, insurance-like derivative contracts on the bonds.

Like their crisis-era predecessors, the new CDOs would be sliced up into different levels of risk and returns. Investors who want a chance at the highest returns would have to buy the riskiest slice.

While spreading risk in some ways, synthetic CDOs also can multiply the financial damage if companies fall behind on their debt payments.

During the financial crisis, CDOs pegged to soured mortgage loans caused losses to careen around the world.

Their catastrophic impact was denounced by many lawmakers and investors, and the market for all kinds of highly engineered financial instruments evaporated.

Some details of the deals being worked on at J.P. Morgan and Morgan Stanley aren’t clear, including the size of the CDOs and which investment firms have expressed an interest in buying slices of them….”

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A Virus is Emptying Banks Accounts Via $FB, Company Sits on its Hands

“A six year old virus that drains bank accounts is thriving on Facebook, reports Nicole Perlroth of the New York Times.

Facebook has been alerted to the problem but it isn’t taking the matter nearly as seriously as it should be, says Eric Feinberg, founder of the advocacy group Fans Against Kounterfeit Enterprise (FAKE).

Feinberg told the NYTimes, “[Facebook isn’t] listening…we need oversight on this.”

The virus is called Zeus…..”

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The Chinese Wall Falls Again

“It’s been ten years since prosecutors announced a $1.4 billion settlement with the Wall Street’s biggest investment banks and two individual stock analysts over accusations that the firms and analysts had duped investors to curry favor with corporate clients. Under the terms of the settlement, twelve investment banks agreed to separate their securities analysis from their investment banking business.

One of the key reforms put in place in the settlement was the bar on basing the compensation of stock analysts on their contribution to investment banking revenue. This was meant to prevent analysts from becoming shills for the corporate clients that were paying fees to the investment banks for stock and bond underwriting deals.

A new study suggests that this part of the settlement may have fallen by the wayside.

Four researchers—Lawrence Brown of Temple University, Andrew Call of Arizona State University, Michael B. Clement of the University of Texas at Austin and Nathan Y. Sharp of Texas A&M University—surveyed 365 sell-side analysts to see how the business of stock analysis is conducted these days. Startlingly, they found that 44 percent of the analysts indicated that their success at generating underwriting business or trading commissions is “very important” to their compensation.

Only 20 percent indicated that underwriting and commissions were “not important” to their compensation. Which means that another 36 percent said these things—supposedly walled off ten years ago—were somewhat important. That’s a total of 80 percent who said that generating underwriting business and trading commissions play some role in their compensation.

In other words, the so-called Chinese walls between analysis and investment banking appear to have come crashing down—and almost no one has noticed….”

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Is America is Being Led Astray by Narcissists ?

“Capitalism is now a cult, and Jamie Dimon is the self-appointed leader of the “cult of capitalism.”

That message is gleaned from a Huffington Post column by Mark Gongloff, whose headline stated that not only is the J.P. Morgan CEO and chairman a cult leader but a “very dangerous” one. Why? Because apparently shareholders have signed “a billion-year contract” to join the cult, notwithstanding portrayals of Dimon as a greedy egomaniac and poster boy for everything wrong with capitalism.

His is a monster of a cult: Warren Buffett is a member. So is CNBC’s Jim Cramer. Says Gongloff, who labels Cramer a “shouty man”: “Cramer joined Warren Buffett and many more VIPs in singing Dimon’s praises and warning of the woe that would befall shareholders” if they split his roles. Still, “the media played along, helping … Dimon keep both of his jobs” as J.P. Morgan Chase & Co.’s chief executive and chairman.

Dimon, meanwhile, was doing what any self-respecting egomaniac under such a threat would do: acting like a petulant teenager and threatening to quit.

Today, reconfirmed as leader of the cult of capitalism, Dimon could serve as the perfect example of what psychologist Ernest Becker wrote about in his Pulitzer Prize–winning classic, “The Denial of Death,” a favorite from my years at Morgan Stanley. Dimon fits the cult-leader profile: charismatic narcissist, uncompromising, manipulating and threatening to his co-conspirators in the “cult of capitalism” and to the masses marching to the drumbeat of his destiny, off another economic cliff, bigger than 2008’s….”

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Fund Managers Report a Spike in Margin Loans to Buy Real Estate

“More and more people are borrowing against their brokerage accounts to buy condos and expand their businesses. That’s not reassuring.

Close-up of roulette wheelFORTUNE — Like the recent bull market? How about taking a home renovation to go with it? That apparently is what some investors have been doing with their stock gains.

The recent run-up in the market, financial advisers say, has led to a resurgence of the type of loan not seen since the end of the housing boom — cash out financing. But this time, though, people aren’t tapping their inflated house for money. These days stock portfolios appear to be the well of choice.

Financial planners say in recent months clients have taken out so-called margin loans to buy real estate, fund small business acquisitions, or to provide gap financing before a traditional loan could be secured from a bank.

“No one wants to be out of the market for 90 days,” says Mark Brown, a financial planner for Brown Tedstrom in Denver. “People just don’t want to sell right now.”

Borrowing against brokerage accounts hit an all-time high earlier this year, according to data from FINRA, and has continued to go higher. Margin loans outstanding totaled nearly $409 billion at the end of April. That compares to $381 billion back in July 2007, the last time stock-market-fueled lending peaked.

Debt is often seen in bubbles, and loose lending was a key part of what led to the housing bust. So the recent rise in stock market borrowing has some people nervous, especially at a time when the market is already making new highs, and seemingly headed straight up. Despite being down on Wednesday, the market has not suffered a three-day string of losses all year, which is not typical. Nonetheless, according to a recent Wall Street Journal article, investors should be less worried about all this margin debt because people aren’t using the borrowed funds to buy more stocks, they are using it as a cheap source of fast cash…..”

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Ricin Letters Sent to Mayor Bloomberg and D.C. Office Housing Mayors Against Illegal Guns

“A letter that was addressed to New York City Mayor Michael Bloomberg has tested positive for ricin, The New York Times reports.

The Wall Street Journal has confirmed the news with the NYPD.

Bloomberg never personally received the poison letter.

Another letter that also tested positive for the substance was reportedly sent to a Washington, D.C. building that houses Mayors Against Illegal Guns, which Bloomberg helps run….”

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Hit the Bricks Kid

“The Memorial Day weekend typically marks the start of the summer vacation season, which for about three-fourths of American workers will mean the possibility of some paid time off.

The United States is the only highly developed nation that doesn’t require employers to offer paid vacation time, according to a new report from the Center for Economic and Policy Research, a left-leaning think tank.

The report examined vacation policies in 21 developed countries, including the United States. The researchers found that every country except the U.S. had laws making employers offer between 10 and 30 paid vacation days a year….”

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The 2 2 Policy

“As the BoJ prepares to thrill us with even moar in its latest policy meeting (or not as we discussed earlier) and with Amari et al. now jawboning JPY to some extent to control the out-of-control chaos in JGBs, it is perhaps worth taking 20 minutes to comprehend just what all this extreme policy action means….”

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