NEXT MOVE FOR FED – No one knows when the Federal Reserve will begin tapering its bond-buying stimulus program. That apparently includes the 12 voting members of its policymaking committee, as revealed by the release of the Fed’s 30-31 July meeting minutes. A few officials seek to move soon, while the more cautious are inclined to wait before making a move, according to the minutes. Ultimately, much rests on economic data that will be released between now and the Fed’s 17-18 September meeting.
BROKE? – U.S. Treasury Secretary Jacob J. Lew say a failure by Congress to raise the debt limit would “have disastrous effects for our nation” and could put at risk payments to Social Security recipients and veterans. “Extraordinary measures are projected to be exhausted in the middle of October. At that point, the United States will have reached the limit of its borrowing authority, and Treasury would be left to fund the government with only the cash we have on hand on any given day.”
100 DAYS AND COUNTING – The Treasury Department accounting of the U.S. government’s receipts, expenditures and borrowings indicates that the legally limited debt of the federal government has now been exactly $16,699,396,000,000 for 100 straight days. It seems of late our government has adopted the Few Good Men line, “You can’t handle the truth!”
ADD SYRIA – Wall Street has another thing to worry about besides rising interest rates and when the Federal Reserve will pull back on its stimulus: the crisis in Syria. Stocks were trading slightly higher in midday trading, but headed south and finished lower after Secretary of State John Kerry delivered a forceful statement to the Syrian government, condemning them for using chemical weapons against civilians, saying the use of the banned arms was “undeniable” and insisting there must be “accountability” for those behind the act. The stock market fell in concert with Kerry’s statement, clearly jittery about the prospect of the U.S.’s potential involvement in yet another conflict in the Mideast.
WAR WEARY – By press time, this may be a done deal but support for an attack on Syria among Americans is more than three times lower than support for U.S. involvement in Vietnam at the very lowest ebb of the war. Some believe the President must follow through on his “red line” threat in order to save face and rescue credibility. However, according to a Reuters poll, only 9% of American support intervention in Syria.
FINANCIALS AND FOREIGN POLICY – Jitters over a possible U.S.-led military strike against the Syrian government knocked Asian equities, with Japan’s Nikkei hitting a two-month low, and pushed oil prices and safe-haven gold to multi-month highs. An acute ‘risk-off’ mode also boosted the appeal of the Japanese yen, which held at a one-week high against the dollar and euro after having posted its biggest rally in more than two months. Against a basket of major currencies, the dollar was steady at a one-week low. Washington and its allies appear to be gearing up for a probable military action against President Bashar al-Assad’s forces, which were blamed for last week’s chemical weapons attacks.
RECOVERY? – How strong the economic recovery has been since the Great Recession ended in 2009 probably depends on viewpoint. For those in the top 5%, the recovery has been pretty good. As for the other 95%, well…maybe not so much. The lower income levels have fared poorly during the recovery because those demographics have their wealth concentrated in housing and are hit far more severely by falling prices, have a more difficult time finding jobs that pay at a rate commensurate with the positions they held. History has shown that highly accommodative monetary policy widens income disparity by awarding speculators and penalizing savers. While the S&P 500 is up nearly 150% since the March 2009 lows, that’s mostly helped those heavily invested in stocks.
EUROPEAN ECONOMY BETTER – Eurozone business activity picked up the pace in August, building momentum from a slight increase in July. The preliminary gauge of the Markit eurozone PMI for August reached a 26-month high, rising to 51.7 from 50.5 in July. Eurozone manufacturing had crossed the threshold of 50 into growth territory in July. The services sector followed in August, rising to a score of 51.0 from 49.8 in July.
EMERGING MARKETS SUFFER – Emerging market currencies continued to weaken versus the U.S. dollar after the latest speculation that the Fed will scale back its monetary easing program. Emerging markets have benefited greatly from the unprecedented free flow of money. Low interest rates in many developed markets have sent investors seeking better rates elsewhere. Among the hardest-hit currencies are the Indian rupee, the Mexican peso, the Brazilian real and the South African rand.
LONDON WHALE SETTLEMENT – U.S. government housing finance authorities are pressing JPMorgan Chase for at least $6 billion to settle lawsuits over bonds backed by subprime mortgages. The company is arguing that it should pay less to settle the claims by the Federal Housing Finance Agency. The FHFA litigation is among a raft of legal issues JPMorgan is trying to work through in addition to investigations over its $6.2 billion “London Whale” derivatives loss of last year. An FHFA spokeswoman declined to comment and the lawyers laughed all the way to the bank.
ANOTHER GOVERNMENT SUIT – A U.S. government lawsuit accusing Bank of America of fraud in the sale of billions of dollars of toxic mortgage loans to Fannie Mae and Freddie Mac is on track to go to trial next month after a judge rejected the bank’s bid to dismiss the case. The order clears the way for the case to proceed toward a scheduled September 23 jury trial. Only a few prominent cases tied to the financial crisis have ever gone to trial. The Department of Justice sued BOA last October, joining a whistleblower lawsuit originally brought by a former Countrywide executive. It alleged that Countrywide, acquired by BOA in July 2008, caused more than $1 billion of taxpayer losses by selling defective home loans to Fannie Mae and Freddie Mac, the mortgage financiers seized by the government in September 2008. Lawyers on both sides are deliriously happy.