JPM Front Runs the Fed, Raises Dividend, Announces $15B Stock Buyback - MBA's Are Passé

At least two of the big US banks have decided to pre-release the news, intended for a formal release on Wednesday, that they have 'passed' their Fed stress tests.

Bending the rules and front-running the Fed is what Wall Street does best, and no one does it better than JPM. Do you think their traders were short the market? lol.

Note: Because of these pre-announcements and the objections of the other banks who were following the rules, the Fed has moved up their stress test results release to 4 PM today. Good boy, Ben. Have a cookie.

JP Morgan was first to announce their exorbitant privilege, as head boy, and the Fed's house bank. Bank of America quickly followed with their own sterling results, right after JPM announced theirs.

Perhaps this was Jamie's way of telling Mr. Koutoulas to put his 'open letter' on integrity in banking where the moon don't shine. And putting his titular regulator, Mr. Bernanke, in his proer place.

I was a little amused today to hear that business college students are eschewing MBAs in favor of degrees in Finance and Accounting. An MBA is designed to actually run a real business, which is just so yesterday.

Better to learn to financialize, and move money around the plate with the greatest of ease. That is the big thing, and the message that the bright minds of the Empire have taken to heart.

It is nice to see that the Fed has saved the Banks. But now, the rest will have to fend for themselves.

Bonus time!

Bloomberg
JPMorgan Chase Boosts Dividend, Unveils $15 Billion Buyback
By Greg Chang
Mar 13, 2012 3:07 PM ET

JPMorgan Chase & Co. (JPM) said it boosted its common stock quarterly dividend by 5 cents to 30 cents a share.

The lender also authorized a new $15 billion stock buyback program, of which up to $12 billion is approved for this year and up to an additional $3 billion is approved through the end of the first quarter of 2013.

JPMorgan said the Federal Reserve raised no objections to the proposed capital distributions.

MBF Clearing Sued By CFTC For Failing to Segregate Customer Funds at JPM

MBF Clearing describes itself as:

"widely-recognized for our preeminent role within the global futures markets, and for being one of the Industry’s leading futures commission merchant (FCM). Our status in 2012 has changed from Clearing to Non Clearing FCM with a clearing relationship with FC Stone.

Our presence extends across all major exchange-traded futures markets, including energy, metals, soft commodities, currencies, interest rates, and equity-related indexes.

MBF provides the gateway to a wide menu of major market centers, and we play an integral role supporting the industry’s most demanding exchange-based traders, premiere hedge fund managers, financial institutions, and a select group of highly-sophisticated retail customers...

MBF Clearing Corp. is particularly well-known for supporting a significant number of professional floor traders, “upstairs” fund managers, and boutique trading firms, including The Fisher Proprietary Trading Group, an elite team of 75+ traders and quantitative analysts that are renowned for their prowess and their disciplined incorporation of the ACD Methodology, a quantitative approach to trading a wide variety of liquid markets."

I wonder if this is more a procedural error, and the money was in fact held safely in government securities on behalf of customers, who received the full benefit of their funds. Or was it some variant of illegal hypothecation in support of MBF's own proprietary trades.

If MBF had gone bust, could the monies may have been lost?  Were they pledged as collateral?  MF Global was certainly not benign at all in their misuse of customer funds, a nice way of saying it was theft, completely mispricing the risk for the customers and taking the differences for themselves.

In other words, MBF may indeed be 'sloppy,' but MF Global was certainly much more than that. It is nice to see that the CFTC is doing something.  I wonder how they found out?  A little help from their friends?

How is the lawsuit the CFTC filed against MF Global going?  Or have they even filed one?

We will have to wait and see.

Bloomberg
MBF Clearing Is Sued by CFTC Over Claims Customer Funds Weren’t Segregated
By Patricia Hurtado
March 13, 2012

MBF Clearing Corp. was sued by the Commodity Futures Trading Commission and accused of failing properly to segregate customer accounts from its own and of violating the Commodity Exchange Act.

MBF employees from September 2008 to March 2010 deposited $30 million to $60 million in customer funds into a U.S. government money market fund at JPMorgan Chase & Co. without properly segregating them, the CFTC alleged today in a complaint in federal court in New York.

The funds were not properly titled, and redemption provisions didn’t comply with CFTC regulations, the agency said. Nor was there proper documentation for the account, it said. MBF also allegedly failed to obtain customer segregation acknowledgement letters on two accounts holding funds for foreign customers from February 2007 to April 2010.

“MBF failed to diligently supervise its employees and agents,” the CFTC said in the complaint. “MBF did not have any written policies or procedures governing the opening and maintenance of customer segregated accounts.”

The firm was accused of failing to maintain sufficient funds in segregation on approximately 322 business days from Oct. 3, 2008, to March 26, 2010.

The CFTC asked for a court order barring MBF’s “unlawful acts and practices” and unspecified civil penalties.

Quinlan Murphy, a lawyer representing MBF Clearing Corp., didn’t immediately return a call seeking comment about the lawsuit.

New York-based MBF Clearing Corp. describes itself on its website as a purchaser and seller of commodities futures contracts and says it was founded in 1987.

The case is CFTC v. MBF Clearing Corp., 12-cv-1830, U.S. District Court, Southern District of New York (Manhattan).

John Williams on the Retail Sales Number - A Brief Interlude on Hyperinflation and Deflation

Although I am still firmly in the stagflation camp, I do allow at least for the possibility of a protracted deflation or a bout of serious inflation, or even a hyperinflation.

Just because something is possible does not make it probable, much less inevitable. I exhausted the subject of deflation, at least to my satisfaction, some years ago. Please do not recommend I read anything more about it. Those who believe it is coming will believe it no matter what, as Gary Shilling has done, with an exquisitely unrequited love, for many, many years.

Deflation is the outcome of a policy choice, nothing more, in an independent fiat currency regime.  So as you can see I am not intolerant of the Modern Monetary Theorists when they repeat what Lord Keynes, and even Friedman and Schwartz, have said for so many years.  It is the 'deficits don't ever matter' meme, wrapped in sophistry, that is cloying. The overlay of state fascism on monetarism is repugnant, and it has been attempted, and failed, several times in the last century.  And it will fail again if it is tried again, as do all Ponzi schemes that fail to conquer the majority of the world.

On the other hand, I am still struggling with the mechanism that John Williams believes makes hyperinflation in the dollar so likely.  I made a study of the forty or so serious inflations since WW II a couple of years ago, and think I understand it.

The difference here is that none of these hyperinflations involved the world's reserve currency, or a country not set upon by the compulsion or after effect of a highly destructive war, or some other exogenous force, or  even a fatal political collapse as in the case of the former Soviet Union. 

I am going to read the paper referenced below again to try and understand why John thinks a hyperinflation fits the case so well here. I still believe it is not probable. But if the American political structure collapses, then it is a different story. But I cannot think how likely that may be, at least for now. It is not that I cannot imagine it; a major policy error in response to a derivatives collapse that threatens the TBTF Banks is one such scenario. A concerted financial attack on King Dollar by a coalition of large economic powers is another. It is just that none of these seems particularly likely at this time.

From John Williams at Shadowstats:

Opening Comments and Executive Summary.

Inflation increasingly is the issue. Looking at February data, where the headline retail sales number put in its strongest monthly showing in six months, headline consumer inflation likely showed its strongest monthly gain in at least 11 months. Higher prices accounted for much of the February sales gain. Whatever gain was left over for the series—net of inflation—was accounted for by unseasonably mild winter weather in much of the country, in the context of ongoing concurrent seasonal factor distortions and normal monthly reporting volatility.

Along with labor data, trade balance, industrial production and housing construction, real (inflation-adjusted) retail sales—as a measure of the physical demand for consumer goods and services—is one of the key monthly economic releases. Accordingly, today’s Commentary is relatively brief, just outlining the nominal (not-adjusted-for-inflation) retail sales detail. A more comprehensive discussion on the latest inflation and economic information will follow in Friday’s (March 16th) Commentary, which will cover February inflation (CPI and PPI) and key economic (industrial production and real retail sales) reporting.

Hyperinflation Watch.

Irrespective of any intervening economic, inflation and financial-market developments, the broad economic, inflation and hyperinflation outlooks discussed in Hyperinflation 2012 of January 25th are not changed...

European Money Aggregates - No Deflation Yet - Policy Responses to Deleveraging

A few asked me about the monetary situation in Europe, one person prefacing it with the statement that 'they are collapsing.'

Well, they are not, at least not yet. And there is nothing that says that they must. But since the person saying this has been desiring this outcome for more than ten years now, I should have known they were not. 

We are now in a global deleveraging after a massive credit bubble was allowed to form, or one could even say promoted, by the Anglo-American banking system.  So it is a tautology to say that there are strong deflationary forces in the economy.  Of course there are, and we know from where they have come, and who profited. 

And the management of this situation is why a central bank exists, for better or for worse.  The long term cure is not to allow them to have created this in the first place.  But that horse is out of the barn, and so one must deal with what they have now, and not what they might have had if they had done differently many years ago.

Ray Dalio has published an interesting historical study of policy responses to deleveraging, and although I obviously do not agree with everything he says I strongly recommend it.  An In Depth Look at Deleveragings.

I keep a general eye on most of the major money systems, but obviously the reserve currency in the Dollar is of keenest interest. My inquiries with the others confirm that in a fiat currency regime, in the absence of external constraints, inflation and deflation are the result of policy decisions.  So one may fairly deduce what their money supplies are doing based on the nature of their national economic policies, allowing for incompetency of course.

The prevailing incompetency, or erreur de politique du jour, is shoveling money into the major banks and financial corporations without engaging in serious systemic reforms, in some vain attempt to trickle down a recovery by saving those made wealthy through fraud and economic distortion, and making their victims pay for it.   Austerity is the policy of the oligarchs.  And the coup de grâce is delivered in supporting a global currency regime that distorts international trade and fosters instability.

Where one does not control their currency, they take the policies which they are given by the central authority, unless there is some political decision made to change the arrangement.

In the case of Europe, there is an odd situation.  It has the currency of a political union, but the policies of a much looser confederation. The Europeans always seem to gravitate towards these unstable hybrids and compromises.  They have a streak of the romantic, perhaps, or it could only be willful self-deception.

These are somewhat independent economies joined under a common currency, but without the sort of transfer payment system that marks a real political union.   The euro is founded on a faulty premise, and therefore on sand, Or on the sandy soil of Berlin, perhaps.

In the States, for example, the monetary policy is set largely by the Northeast, but the tax and spending system transfers wealth to the poorer member states, largely in the South and Southwest. This is the trade off when a region with a somewhat independent local economy surrenders its ability to manage its own monetary policy and the ability to devalue and revalue its currency in trade.

The ECB and the major political powers are choosing a fiscal deflationary course that seems to favor their own powerful national banks and industrial interests.  And yet they are faced with printing enormous amounts of money to smooth over their rescue of their banks and the continuance of their arrangement. 

Those who are sitting on their loot from the bubble dearly wish for deflation, and tight money policies, and austerity for 'the others.'   What better way to acquire even more income producing assets, and power, and to continue to widen the gap between the haves and the have nots. 

While I have a general preference towards a hard money supply and organic restraint, the time to impose this is not after a general looting of the public has occurred by the monied interests.  They promote easy money and profligacy when it suits them, and then cry out in alarm for sound money and austerity AFTER they have the cash.  They swing from one bad policy decision to another.  Their hypocrisy is almost as boundless as the economists, intellectuals, and politicians who serve them.

The most likely outcome is for a breakup of the European Union as it is constituted today, and a continuing union with fewer members. The key is obviously the relationship amongst the big Five. Whether a powerful group attempts to 'unite' the greater Europe under a more comprehensive rule remains to be seen.

Personally I think the former is more desirable, at least within my lifetime. The latter course most likely presumes an eventual bloodbath that will be historic even compared to the century of blood just passed.