SP 500 and NDX Futures Daily Charts - JPM Front Runs the Fed

JPM chose to front run the Fed's stress test announcement scheduled for tomorrow, and dropped their own announcement, along with a rich stock buyback and a dividend increase, into a quiet market this afternoon.

The Fed heard their master's voice, and changed their plans to release the results after the close today. Bernanke has repeatedly shown he is incapable of independent judgement as a regulator. So he blends well with the Obama economic team and the majority in Congress.

The market headed higher, led by the big banks. It was a 'risk on' day.

I seem to recall they did something like this with the last stress test results, and the banks soared, only to give up much of their gains slowly over the next six months.

But this does help to underscore the major policy error in which the Fed and the government are saving the banks and letting the real economy fend for itself.

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...