William J. Clinton, Former President

Liberalism is truly a mental disorder.  The older I get the easier it is to see.

Here is a fine champion of women's rights and sexual equality speaking straight from his heart!!

Everyone in America should believe this Arkansas liberal.   Thank the Good Lord he left a beautiful stain on a blue dress!

BILL CLINTON on IMMIGRATION  

FED FOLLY!

After years of veiled suggestions by market skeptics that the Fed's two core mandates, inflation and employment, are just a cover for its real "third" mandate, namely supporting asset prices, today the president of the Minneapolis Fed came confirmed just that when during a meeting of the Financial Planning Association of Minnesota in Golden Valley, Minnesota, he said that “really we have a third mandate and the third mandate is financial stability.”

Kashkari also said that “at some point in probably the not too distant future” the central bank will begin to allow balance sheet to shrink via roll off although he added that “it probably won’t be as small as it was before because the U.S. economy continues to grow, but it will be smaller than it is today.”

Kashkari also said that “we are keeping our eyes open for asset prices to try to look for signs of bubbles” but admitted that it is "very hard to see asset bubbles in advance."

The regional Fed president also said that while wages have come up "they're not at alarming levels." Of course, if one looks at real, inflatiob-adjusted wages, they are actually down for the first time in years.

Preempting what are likely to be major changes in the Fed's structure under president Trump, Kashkari said that "protecting Fed independence is enormously important."

Kashkari, the golden tool of the Minneapolis Fed speaks again.   He reminds me of Bernanke in so many ways.   The only mandate they had in 2008 was to keep the ship upright for the Democrats to bail out the gravy train in Bankerville.  I spoke about the joke on the American people in this blog about the inflation/unemployment mandate back then.  It's a larger joke now, $10,000,000,000,000 in debt later.    Maybe Kashkari and his crew should talk to a few who made obscene profits off the last bubble.   They saw it clear as day.   I guess when your own institution is behind the current bubble it is difficult to see and to think clearly.

The real mandate of the Fed is to enrich its owners.   Did I miss anything? 

The next 5 Commandments

1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.

2. What one person receives without working for, another person must work for without receiving.

3. The government cannot give to anybody anything that the government does not  first take from somebody else.

4. You cannot multiply wealth by dividing it!

5. When half of  the people get the idea that they do not have to work  because the other half is going to take care of them,  and when the other half gets the idea that it does no good to work because somebody else is going to get what  they work for, that is the beginning of the end of any nation.

President Trump LISTEN UP!

My advice to President Trump:

Bring the heads of the NSA, CIA, FBI, and other Intelligence agencies into the Oval office.

Advise them they have one week to ID the person(s) responsible leaking some of our nation's most sensitive signal intelligence, and to prepare a package of evidence (polygraph/interview/confession/tech logs/electronic breadcrumbs/userID logins/USB use/etc) for the Dept of Justice for a criminal prosecution. 

There is a "Need to Know" requirement for granting access to every single piece of intel like the kind leaked in this instance, so the list of people with access to it will be easy to generate. 

If, at the end of one week, the leakers have not been identified, President Trump should fire the heads of each agency responsible for the generation, review, and dissemination of the leaked intel.  

The stakes are simply too high to treat this as just another "leak of classified information" that became so routine under the Clinton & Obama administrations.  The "Ends Justify the Means", scorched earth mentality that allows anyone with a security clearance to expose our techniques, knowledge, and intelligence to the world, must be dealt with in swift and harsh terms.

If that means dismissing the head of each agency with access to the intel to send a message this sort of thing will not be tolerated, so be it.  

The leaked information not only alerted the world about what phone lines were being listened to and who was being monitored, it also informed them the U.S. Intel community had previously designated those foreign individuals as being intelligence agents. The fallout from the leaks cannot be calculated.

Kashkari means Banks Once Again will be Socializing Losses!

In a scathing editorial published in the Wall Street Journal today, the president of the Federal Reserve Bank of Minneapolis, Neel Kashkari, blasted US banks, saying that they still lacked sufficient capital to withstand a major crisis.

Kashkari makes a great analogy.

When you’re applying for a mortgage or business loan, sensible banks are supposed to demand a 20% down payment from their borrowers.

If you want to buy a $500,000 home, a conservative bank will loan creditworthy borrowers $400,000. The borrower must be able to scratch together a $100,000 down payment.

But when banks make investments and buy assets, they aren’t required to do the same thing.

Remember that when you deposit money at a bank, you’re essentially loaning them your savings.

As a bank depositor, you’re the lender. The bank is the borrower.

Banks pool together their deposits and make various loans and investments.

They buy government bonds, financial commercial trade, and fund real estate purchases.

Some of their investment decisions make sense. Others are completely idiotic, as we saw in the 2008 financial meltdown.

But the larger point is that banks don’t use their own money to make these investments. They use other people’s money. Your money.

A bank’s investment portfolio is almost entirely funded with its customers’ savings. Very little of the bank’s own money is at risk.

You can see the stark contrast here.

If you as an individual want to borrow money to invest in something, you’re obliged to put down 20%, perhaps even much more depending on the asset.

Your down payment provides a substantial cushion for the bank; if you stop paying the loan, the value of the property could decline 20% before the bank loses any money.

But if a bank wants to make an investment, they typically don’t have to put down a single penny.

The bank’s lenders, i.e. its depositors, put up all the money for the investment.

If the investment does well, the bank keeps all the profits.

But if the investment does poorly, the bank hasn’t risked any of its own money.

The bank’s lenders (i.e. the depositors) are taking on all the risk.

This seems pretty one-sided, especially considering that in exchange for assuming all the risk of a bank’s investment decisions, you are rewarded with a miniscule interest rate that fails to keep up with inflation.

(After which the government taxes you on the interest that you receive.)

It hardly seems worth it.

Back in 2008-2009, the entire financial system was on the brink of collapse because banks had been making wild bets without having sufficient capital.

In other words, the banks hadn’t made a sufficient “down payment” on the toxic investments they had purchased.

All those assets and idiotic loans were made almost exclusively with their customers’ savings.

Lehman Brothers, a now-defunct investment bank, infamously had about 3% capital at the time of its collapse, meaning that Lehman used just 3% of its own money to buy toxic assets.

Eventually the values of those toxic assets collapsed.

And not only was the bank wiped out, but investors who had loaned the bank money took a giant loss.

This happened across the entire financial system because banks had made idiotic investment decisions and failed to maintain sufficient capital to absorb the losses.

Nearly a decade later, Kashkari says that banks still aren’t sufficiently capitalized.

(He also points out that banks today are obsessed with pointless documentation and seem “unable to exercise judgment or use common sense.”)

The banks themselves obviously don’t agree.

As Kashkari states, banks feel that they currently have TOO MUCH capital.

Bizarre. They’re basically saying that they want to be LESS safe, like a stunt pilot complaining that his helmet is too sturdy.

In addition to solvency and liquidity concerns, there are a multitude of other issues, like routine violations of the public trust, collusion to fix interest and exchange rates, manipulation of asset prices, and all-out fraud.

Yet despite these obvious risks, most people simply assume away the safety of their bank.

They’ll spend more time thinking about what to watch on Netflix than which bank is the most responsible custodian of their life’s savings.

There are countless ways to figure this out, but here’s a short-cut: much much “capital” or “equity” does the bank have as a percentage of its total assets?

These are easy numbers to find. Just Google “XYZ bank balance sheet”.

Look at the bottom where it says “capital” or “equity”. That’s your numerator.

Then look above that number to find total assets. That’s your denominator.

Divide the two. The higher the percentage, the safer the bank.

Kashkari thinks the answer should be at least 20%, especially among mega-banks in the US.

Palm Beach Weekend

It is always nice to break up the winter weather with Florida sun.   Mixed some business with pleasure and  loved our run up the Inter Coastal Waterway on the Mercurius,   President Trump was in town for the weekend and there was a hell of bash thrown for a birthday.

A Wall Street Birthday to Remember!

Greg Smith left nearly 5 years ago..............

For the dramatic impact of technology, and specifically trade automation from algo, quant and robotic trading  on today's capital markets, look no further than Goldman's cash equities trading floor at the firm's headquarters which, according to the MIT Tech Review, employed 600 traders its height back in 2000, buying and selling stocks for Goldman's institutional client clients. Today there are just two equity traders left.

Complex trading algorithms, some with machine-learning capabilities, first replaced trades where the price of what’s being sold was easy to determine on the market, including the stocks traded by Goldman’s old 600.

Call it the rise of the machines which we warned about over 8 years ago back in 2009, just after the peak of the financial crisis, which have led to the extinction of the cash equity trader job.

"Automated trading programs have taken over the rest of the work, supported by 200 computer engineers. Marty Chavez, the company’s deputy chief financial officer and former chief information officer, explained all this to attendees at a symposium on computing’s impact on economic activity held by Harvard’s Institute for Applied Computational Science last month."

It's not just cash trading: according to Goldman's next CFO, Marty Chavez, areas of trading like currencies and even parts of business lines like investment banking are moving in the same automated direction that equities have already traveled. As Tech Review adds, today, nearly 45 percent of trading is done electronically, according to Coalition, a U.K. firm that tracks the industry. In addition to back-office clerical workers, on Wall Street machines are replacing a lot of highly paid people, too.

Ironically, the age of trading automation, means that the big banks, like the rest of the economy, are increasingly seeing the same income spreads that mirror the broader economy.

Average compensation for staff in sales, trading, and research at the 12 largest global investment banks, of which Goldman is one, is $500,000 in salary and bonus, according to Coalition. Seventy-five percent of Wall Street compensation goes to these highly paid “front end” employees, says Amrit Shahani, head of research at Coalition.

According to Goldman's most recent quarterly report, after sliding for the past few years, average banker comp rebounded to the highest in one year, reaching $338,576, still well below the levels attained in recent years.

As the MIT publication adds, for the highly paid who remain, there is a growing income spread that mirrors the broader economy, says Babson College professor Tom Davenport. “The pay of the average managing director at Goldman will probably get even bigger, as there are fewer lower-level people to share the profits with,” he says.

With time, even more highly paid jobs will be lost to automation:

Complex trading algorithms, some with machine-learning capabilities, first replaced trades where the price of what’s being sold was easy to determine on the market, including the stocks traded by Goldman’s old 600.

Now areas of trading like currencies and futures, which are not traded on a stock exchange like the New York Stock Exchange but rather have prices that fluctuate, are coming in for more automation as well. To execute these trades, algorithms are being designed to emulate as closely as possible what a human trader would do, explains Coalition’s Shahani.

After equities, the next distressed group appear to be FX traders, which is hardly surprising after the recent scandals rocking the cash and spot trading FX community, resulting in billions of settlements payments over rigged fixes and markets. Here, Goldman has already begun to automate currency trading, and has found consistently that four traders can be replaced by one computer engineer, Chavez said at the Harvard conference.

Stunningly, some 9,000 people, about one-third of Goldman’s staff, are computer engineers, Chavez said at the symposium.

And, after equity and FX traders, it will be the backbone of Wall Street: investment bankers themselves: "Next, Chavez said, will be the automation of investment banking tasks, work that traditionally has been focused on human skills like salesmanship and building relationships. Though those “rainmakers” won’t be replaced entirely, Goldman has already mapped 146 distinct steps taken in any initial public offering of stock, and many are “begging to be automated,” he said."

Needless to say, this is great news for Goldman, which says that reducing the number of investment bankers would be a great cost savings for the firm. Investment bankers working on corporate mergers and acquisitions at large banks like Goldman make on average $700,000 a year, according to Coalition, with most MDs and partners earning orders of magnitude more.

Chavez himself is an example of the rising role of technology at Goldman Sachs. It’s his expertise in risk that makes him suited to the task of CFO, a role more typically held by accountants, Chavez told analysts on a recent Goldman Sachs earnings call. “Everything we do is underpinned by math and a lot of software,” he told the Harvard audience in January.

Finally, for the most glaring example of how technology impact new Goldman product lines, consider that Goldman’s new consumer lending platform, Marcus, aimed at consolidation of credit card balances, is entirely run by software, with no human intervention, according to the CFO. It was nurtured like a small startup within the firm and launched in just 12 months, he said. It’s a model Goldman is continuing, housing groups in “bubbles,” some on the now-empty trading spaces in Goldman’s New York headquarters:

“Those 600 traders, there is a lot of space where they used to sit,” he said.

Palm Beach

UGA Bass Anglers

No wonder Goodell was booed!!

Best Super Bowl line of all time.................

"Pressure is a privilege."

Diane Addonizio Long,    February 5, 2017

War hoops from Indian Country.................

A United States Government plane toured some Native American ground in pipeline country yesterday.    The government spokesman who is a Democrat and worked in the Obama Administration said all went very well.