The Market Bull – February 22, 2019
The major averages closed with modest gains on an absence of economic data. Since Tuesday the Standard and Poors 500 Index gained 24 points or .86% while the NASDAQ advanced 77 points or 1.03%.
Rumors of a negotiated settlement with the Chinese to avert a sharp escalation in the trade war continue to circulate but I’ll believe it when I see it. With the deadline just a week away, both sides had better get busy.
The 2007-2009 financial crisis was primarily caused by reckless mortgage lending, much of it sub-prime. This time around the crisis is likely to be primarily a corporate one, much of it sub-prime or in this case junk or high yield. Following years of debt funded corporate share buy backs that have covered up declining real earnings, goosed stock prices and fattened executive compensation packages.Trouble is that while very attractive and seemingly effective short term this strategy amounts to corporate financial suicide long term. With interest rates higher and some 3.3 trillion Dollars of corporate debt set to roll over in the next 4-years. The companies that pursued this short-sighted strategy are, much like the group that took out Home Equity Lines of Credit in the previous bust, will soon be shown to be foolhardy and reckless, just like they were last time.
The Mortgage Bankers Association released its 4th Quarter 2018 National Delinquency Survey last week, some highlights from the report include delinquencies falling .41% to 4.06% a 19-year low for the series.
Also of note there is a fair amount of recent correlation between the delinquency rate and the unemployment rate over the last 20-years or so.
At this point I have seen so many lawsuits, regulatory actions, sanctions, fines, penalties etc. etc. levied against the banksters compliments of their lie, cheat, and steal business model that I almost consider it “normal” at this point and hardly noteworthy. It’s hard to draw a conclusion other than the banksters just plain don’t give a rat’s ass about rules and regulations and mock the regulators at every turn, knowing full well that any penalties will be relatively trivial compared to their ill-gotten gains. The latest chapter in this sordid and pathetic story is the City of Philadelphia suing Bank of America, Barclays, Citigroup, Goldman Sachs, JP Morgan Chase, Royal Bank of Canada, and Wells Fargo, essentially all of the usual suspects. For colluding to manipulate rates of variable-rate demand obligations or VRDO’s. According to the court documents, the banks are already being criminally investigated by the Department of Justice’s antitrust division over this, while the US Securities and Exchange Commission or SEC has contacted four of the defendants with questions about their conduct on this subject as well. Similar lawsuits are already being litigated in Massachusetts, California, Illinois, and New York to the tune of a billion Dollars, accusing the major banks of similar behavior. I must admit that while I’m not familiar with criminal law I’m pretty sure the 3-strickes laws were designed to take habitual criminals off the streets with an additional 25-year sentence on the 3rd felony strike. Seems to me the time for applying this to the banksters is long overdue.
Standard and Poors 500 Index closed at: 2,792.67 up 17.79
NASDAQ finished the day: 7,527.54 up 67.84
Gold ended trading at: $1,331.00 up $3.20