May 2, 2014
- How the feds are strangling scores of legal businesses and leaving no fingerprints
- Awesome jobs numbers, Wall Street rallies… for less than 60 seconds
- Government investigates self, finds nothing wrong with pre-election job numbers
- Margin debt: The Internet screamers who were wrong all last year might be on to something now
- Smart Millennials sink Obamacare… revisiting “peak helium”… the trust fund that’s neither… and more!
“I was very angry,” Elizabeth Liberti recalls. “All of a sudden, we had to run and find another bank to keep our business going. We shut down for two weeks, and they wouldn’t even tell us why.”
Ms. Liberti is an online firearms dealer in south Florida. In March, BankUnited sent a letter: Her checking account was being closed. She had three days to move her cash elsewhere.
No explanation was immediately forthcoming. But she pushed, and finally a branch manager wrote back, in mangled syntax: “This letter in no way reflects any derogatory reasons for such action on your behalf. But rather one of industry… Unfortunately your company’s line of business is not commensurate with the industries we work with.”
It appears Ms. Liberti has entered the guilty-until-proven-innocent world of “Operation Chokepoint.” And you can never prove yourself innocent.
Let’s backtrack: On Wednesday, we had a peculiar item about how JPMorgan Chase was closing the bank accounts of porn starlets. We reckoned the move was based on a 2012 FDIC memo warning about all manner of legal businesses that might be tied, however tenuously, to “money laundering” — everything from porn to payday loans.
Yesterday, a reader wrote in to tell us Chase was closing all five of his business accounts along with his family’s accounts, even though his self-described lines of business — “financial services, a retail store and an affiliate marketing company” — don’t sound like potential money-laundering fronts.
“The ‘chokepoint’ in this operation is the nation’s payments infrastructure, the means by which merchants process nearly $5 trillion in consumer purchases in the U.S. each year,” explains Jason Oxman, CEO of the Electronic Transactions Association.
In addition to strong-arming banks to close accounts, the Justice Department “is flooding payments companies that provide processing service… with subpoenas, civil investigative demands and other burdensome and costly legal demands.”
In other words, the feds are making it a colossal pain for banks and the like to execute transactions for firearms dealers, tobacco merchants, telemarketers and so on.
“Thus far,” writes Oxman, “payday lenders have been the most frequent target. Whatever the merits of payday lending — and there are valid arguments on both sides — it is legal in 36 states. And if payday lenders are today’s target — what category will be next, and who makes that decision?”
Attorney General Eric Holder: The “decider” in Operation Chokepoint?
Via Operation Chokepoint, Eric Holder’s Department of Justice “is coercing private businesses in an attempt to centrally engineer the American marketplace based on its own politically biased moral judgments,” declares Elizabeth Nolan Brown at Reason.
Last year, Sen. David Vitter (R-LA) said the Justice Department has “no statutory authority” to carry out something like Operation Chokepoint.
“But why bother with statutory authority,” says Brown, “when you can just secretly strong-arm highly regulated businesses into doing what you want?”
The porn stars and payday lenders caught up in Operation Chokepoint appear to be in the same boat as the small businesses that Chase barred from international wire transfers last year. They’re innocent parties caught up in the feds’ obsession with enforcing the Patriot Act and IRS requirements. And because the feds are imposing more cost-of-doing-business fines on the banks these days, the banks are willing to go through the motions of looking “more” compliant.
No, there’s not much you can do about it if you get a nastygram from your bank. But we figure you might want to know about it anyway, and there’s a reasonable chance you won’t read about it elsewhere.
The investment implications? Not many… although these developments reinforce our qualms about the uber-hyped “pot stocks” that are supposed to make a killing from legal marijuana in Colorado and Washington state.
Stock index futures ran up big-time at 8:30 a.m. EDT, the moment the unemployment numbers came out.
The Bureau of Labor Statistics conjured 288,000 new jobs in April — way more than the Street’s expectations and the third-strongest figure of the “recovery.” The unemployment rate dropped to 6.3% — the lowest since September 2008.
Then traders took a peek inside the numbers, and futures collapsed within 60 seconds.
Sure enough, the unemployment rate fell once again because scads of people dropped out of the workforce — 806,000, by the wonks’ estimation. At the risk of repeating ourselves every time these numbers come out, we assure you most of those 806,000 people did not retire at age 65 with a gold watch; they’re younger people who’ve given up looking for work out of disgust or resignation.
As we write, most of the major U.S. stock indexes are flat; the one outlier is the small-cap Russell 2000, up about a half percent.
By the way, the real-world unemployment rate calculated at ShadowStats.com is still 23.2% — where it’s been stuck all year.
After investigating itself, the government has concluded it does not manipulate the unemployment numbers.
Last fall, we mentioned New York Post business columnist John Crudele had uncovered a blatant attempt at “juking the stats” during the run-up to the 2012 presidential election. He traced the plot to the Philadelphia office of the Census Bureau. It’s the Census Bureau that conducts the surveys that BLS statisticians use to come up with the monthly job figures.
The Census Bureau’s parent agency, the Department of Commerce, put its inspector general on the case. Yesterday, the inspector general said it “exhaustively investigated these allegations and found them to be unsubstantiated.”
[We’ll pause a moment while you catch your breath from the shock…]
Crudele is sticking by his reporting, and says it’s time for an independent prosecutor to take up the case. Well, a man can dream, right?
Hey, whaddya know? Margin debt’s coming down. And it’s not a good development for the stock market.
Throughout the stock market’s 30% run-up in 2013, certain screamers on the Internet never tired of reminding their readers that margin debt was approaching, and then exceeding, all-time highs. This was a recipe, we were warned in bold and color font, for FULL-ON COLLAPSE.
Margin debt is when people borrow money to buy stocks. The “thinking,” if that’s what you want to call it, is that if there were a market correction, investors would start getting margin calls. They’d have to either pour more money into their accounts or, more likely, sell some of their positions. The selling would beget more selling, which would then beget panic selling, until we had an instant rerun of 1929 or 1987. Only this time, humanity would go feral.
Well, take a look at what’s happened to margin debt of late…
“Everyone was screaming bloody murder as margin debt rose. But that’s what happens in a bull market,” explains Greg Guenthner of our trading desk. “Now, margin debt has dropped for the first time in eight months — which is actually a much bigger concern to me.
“If you look at the last two market peaks, you can see that margin debt decreases actually led prices lower. This is something to watch moving into the summer. One month does not a trend make. But if we see continued unwinding from the big-money players, we could be in for lower prices.”
Gold popped for no obvious reason around 10:00 a.m. EDT. As we write, the Midas metal has recovered the $1,300 handle — just barely.
The “young invincibles” have proven themselves too smart to sign up for Obamacare.
The White House is out with its latest enrollment figures. The 18-34 cohort makes up 28% of enrollees. “The proportion is higher than previous counts,” says The Wall Street Journal. “But it is significantly below the 40% level that some analysts consider important for holding down rates by balancing the greater medical spending generated by older enrollees.” To say nothing of the administration’s own promises, heh…
Obamacare’s vaunted “cost controls” work only if young healthy people step up to subsidize the care of the old and sick. Already, Florida Blue says the numbers will “tend to drive a higher rate increase” in 2015.
We continue to urge you to take steps to limit Obamacare’s impact on your life. We lay out the most crucial step you can take at this link.
“Due to a national helium shortage, we are currently unable to offer Harry the Dragon balloons to our customers in training,” says a notice at a grocery store outside Washington, D.C.
Nearly four years ago, we noticed this looming shortage in 2010… when Nobel laureate physicist Robert Richardson warned the world will likely run out of helium by 2035-40. Then, he reckoned the true market price for a helium party balloon would be $99.36.
Now the bite is really starting to make itself felt. NASA has had to delay rocket launches. The University of Colorado sees up to three-week delays in helium deliveries for a giant magnet. Helium is needed for everything from MRIs in medicine to the manufacture of mobile phones and tablets.
So why is there no market price? Leave it to government.
Eighty percent of global reserves of this nonrenewable resource sit in the American Southwest, mostly in the National Helium Reserve in Amarillo, Texas. Under a 1996 law, that reserve is required to be sold off by 2015, regardless of global supply or market price.
Actually, it’s even sillier than that. The law insisted that all costs incurred in selling off the reserve be returned to the U.S. Treasury, drawn from the proceeds of helium sales. As of last year, Uncle Sam had finally broken even on the proposition… and as such, the Federal Helium Reserve was set to shut down, even though there were still 9 billion cubic feet of helium in storage.
So Congress went back to the drawing board. The rest of the helium will come to market — some at auction, but much at an arbitrary price of $95 per thousand cubic feet. So the fundamental problem remains unsolved. And the Federal Helium Reserve still supplies about one-third of the world’s helium.
“Every time I watch the Macy’s parade, I get furious,” the University of Colorado’s Richard Shoemaker tells The Weekly Standard. After all, it’s helium that could be going in his giant magnet…
“You referred to ‘the Social Security trust fund’ in Wednesday’s 5,” a reader writes. “My understanding is there is no real trust fund, only an account at the Treasury. Please, don’t help propagate the myth!”
The 5: Aw, c’mon — give us some credit. First of all, we put “trust fund” in quotation marks. And second, we made the point that Congress was borrowing against the fund to cover day-to-day expenses.
We remember well the words of the former U.S. comptroller general David Walker, protagonist of our documentary I.O.U.S.A.: “The Social Security Trust Fund can’t be trusted, and it isn’t funded.”
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. Hope you caught my email earlier today. If not, I reproduce it in full below…
