A Bank’s Right to Profits

  • How magnanimous: Fed wants to lend another helping hand to the “too big to fails”
  • The biggest banks assert a constitutional right to easy profits
  • You heard it here first: Mainstream declares “a new era of a stronger yen”
  • Postmortem for a cancelled merger, and what’s next for two oil-services giants
  • Will the real Bitcoin creator please stand up?
  • Taking the pulse of America’s factories… the man who wrote the book on surviving civil unrest… porn of the past, present and (virtual) future… and more!

Wall Street’s culture of impunity, Part 1: Apparently the “too big to fail” institutions still lack sufficient protection from failure.
From this morning’s Financial Times: “A top Federal Reserve official has warned of ‘significant gaps’ in the central bank’s ability to provide emergency help to financial institutions in difficulties as he argued for broader access to its lending window.”
The “top official” here is New York Fed chief Bill Dudley — known affectionately to David Stockman’s readers as “B-Dud,” and remembered by longtime readers of The 5 for trying in 2011 to explain to everyday people why inflation was no big deal because the new iPad was better than the old one, while selling for the same price.
True story. The legendary rejoinder from someone in the crowd: “I can’t eat an iPad.”


B-Dud: Man of the people…

“In my view, an important issue is to identify and address gaps in the [Fed’s] lender-of-last-resort function,” Dudley said yesterday during a Fed function at Amelia Island, Florida.
Mr. Dudley is wringing his hands because only “depository institutions” like commercial banks have access to the Fed’s discount window — a source of emergency loans during a crisis. “The law hampers the ability of a bank to pass along discount window funding to its securities unit,” explains The Wall Street Journal.
Said Dudley: “Now that all major securities firms in the U.S. are part of bank holding companies and are subject to enhanced prudential standards as well as capital and liquidity stress tests, providing these firms with access to the discount window might be worth exploring.”
A cynic might wonder if such a move would free up the trading units at the banks to take bigger risks with more leverage, knowing that if it goes haywire, the parent firm can always run to the discount window for a quick fix.
We at The 5 are not cynics… Heh.
Wall Street’s culture of impunity, Part 2: The biggest banks say they have a constitutional right to risk-free profit via the Fed.
Back in December, we told you how Congress raided some of the Federal Reserve’s accounts to fund a new highway bill. Specifically, Congress cut the annual dividend on stock that big banks purchase to belong to the Federal Reserve System.
This stock is a risk-free proposition; the dividend gets paid out even in the unlikely event a regional Fed bank is disbanded.
For banks with more than $10 billion in assets, the legislation cuts the dividend from 6% to a rate pegged to the 10-year Treasury note — which at the last Treasury auction was 1.765%.
Now that the Fed is about to follow through with Congress’ orders and cut the dividend, the bankers’ lobby is crying foul.
“The Takings Clause of the Fifth Amendment provides that ‘private property’ shall not ‘be taken for public use, without just compensation,’” whines Rob Nichols, chief lobbyist for the American Bankers Association.
And then he threw in this disingenuous bit: “The dividend rate remained unchanged for over 100 years, and it has long been considered fundamental to the Federal Reserve’s ability to attract member banks.”
Attract? The law requires nationally chartered banks to join the Federal Reserve System. That goes back to the Fed’s formation in 1913. Besides, membership has its privileges — including access to the discount window.
“Given those facts,” writes David Dayen at The Intercept, “Nichols’s argument amounts to saying that the 6% dividend rate itself is constitutionally protected, because it’s been around for a long time. Nichols effectively asserts that the risk-free dividend is bank property.”
Oy… Nichols’ objection arrived late last week at the end of a public-comment period in the run-up to the Fed’s implementing the dividend cut. A lawsuit might well be next…
To the markets — which are rallying modestly from a slump late last week. At last check, the S&P 500 was up a quarter-percent, at 2,071. Blue chips are outperforming small caps.
Gold made a run at $1,300 in overnight trade, but as we write it’s pulled back to Friday’s levels at $1,291. Crude has pulled back nearly 1.5%, to $45.24.
The big economic number of the day is the April ISM Manufacturing Index. At 50.8, it’s notched a second straight month of above-50 readings, indicating an expanding factory sector. Still, it’s down from the previous month’s 51.8 reading. New orders are a source of strength in the number; jobs, a weakness.
Meanwhile, the euro has pulled above $1.15 for the first time since August… and the yen is strengthening to yet another 18-month high of 106.5 yen to the dollar.
Today’s Financial Times speaks of Japanese firms struggling “to prepare for an era of a stronger yen.” Gee, only last week the mainstream was betting the Bank of Japan would venture further into the abyss of negative interest rates, weakening the yen.
But as we said on Thursday, it didn’t happen. The BoJ weakening the yen would have violated the terms of the “Shanghai Accord” — the secret deal Jim Rickards says was struck in Shanghai during late February among the globe’s Big Four monetary powers and the International Monetary Fund.
As a quick refresher, the deal works like this: The Bank of Japan works to strengthen the yen. The European Central Bank works to strengthen the euro. Meanwhile, the Federal Reserve works to weaken the dollar… and because the Chinese yuan is loosely pegged to the dollar, the People’s Bank of China gets the effects of yuan devaluation without devaluing on its own. (The Chinese devaluing on their own has the side effect of a sudden U.S. stock market correction, as happened twice since last summer.)
Anyway, the mainstream appears resigned to a strong yen for the duration now. The Shanghai Accord thesis remains alive and kicking. There’s still time to profit accordingly.
“I never thought that this was a great idea,” says an email from Byron King weighing in on the now-cancelled merger between oil-services firms Halliburton and Baker Hughes. “The only people set to benefit were investment bankers, a few large shareholders and suits at the top.”
We saw the writing on the wall a month ago when the feds sued to stop the deal. Just as well, Byron says.
“For as ‘good’ as each company was/is in its niche, combining them was not going to make something better — just a larger firm with less competition.”
Now? “HAL will be OK, eventually,” Byron says. “But BHI has spent a year or more laying people off, closing offices, not pursuing research and development, failing to compete for business in a brutal market. So despite collecting a breakup fee, I suspect BHI will soon encounter cash flow issues.”
Not that that stopped BHI from announcing a $2.5 billion stock buyback just before the open. “Financial engineering at its stupidest,” Byron avers.
Meanwhile, industry leader Schlumberger (SLB) keeps on truckin’ and doing all the right things during an extended episode of low oil prices…
We were fairly certain Newsweek was being jerked around two years ago when it claimed it tracked down the creator of Bitcoin. Now we have confirmation.
Over the weekend, an Australian named Craig Wright met with reporters in London and declared he’s the real “Satoshi Nakamoto” who developed the cryptocurrency.
According to a BBC story, “Mr. Wright digitally signed messages using cryptographic keys created during the early days of Bitcoin’s development. The keys are inextricably linked to blocks of bitcoins known to have been created or ‘mined’ by Satoshi Nakamoto.”

Description: BBCWorldNews.png

Top figures in the Bitcoin movement find the evidence convincing. “During the London proof sessions, I had the opportunity to review the relevant data along three distinct lines: cryptographic, social and technical,” says Jon Matonis, an economist and founding director of the Bitcoin Foundation. “It is my firm belief that Craig Wright satisfies all three categories.”
Allow us a quick 5 flashback: In March 2014, we raised an eyebrow at the mainstream “outing” of a Japanese immigrant from California as Bitcoin’s creator — a fellow whose name really is Satoshi Nakamoto.
He turned down interviews. His daughter Ilene Mitchell, not so much. From Newsweek’s account at the time: “A libertarian, Nakamoto encouraged his daughter to be independent, start her own business and ‘not be under the government’s thumb,’ she says. ‘He was very wary of the government, taxes and people in charge’…
“He is very wary of government interference in general,” she told the magazine. “When I was little, there was a game we used to play. He would say, ‘Pretend the government agencies are coming after you.’ And I would hide in the closet.”
Said your editor: “Are we sure Newsweek isn’t being punked?”
Now we know…
“Help us read and prep for the future,” implores a brief email from a reader. “Ever gonna hire someone to advise how to survive the coming civil unrest?”
The 5: As it happens, there’s a fellow who literally wrote the book on that. He survived the economic disaster that befell Argentina in late 2001.
We make the book available in a bundle, at a very attractive price, with Jim Rickards’ The New Case for Gold.
“Every advance can be, and historically has been, subverted, bringing at least tacit acceptance over time,” writes one of our regulars about virtual reality and the porn industry as an early adopter.
“As adolescents in the ’50s, we used to sneak Playboy magazines, which were about the raciest thing going. Let’s hear it for 8mm movies, which were not easily available. The VCR brought exposure to a much wider age range. When Mom and Dad were out, the cable TV went to some interesting channels.
“In the late ’90s, whitehouse.com was about as obscene as any Washington politics, with virtually no restrictions as to who could peruse these sites (‘Click OK to confirm that you are at least 18’ — yeah, right!). You can try to get in the way of sexually oriented VR, but you can’t stop it.
“Can you imagine the large icon view of the iTunes catalog in a couple of years? This is all a good start.
“BUT (this is The 5) there will be suffering and lost jobs. The ladies of the night will lose out in the same way that CPAs would lose out if the tax code were ever truly simplified (no comment about the similarity of functions). BUT (a double-down ‘BUT’ today!), don’t despair! The rebirth of the ‘house of horizontal refreshment’ will come with cooperative VR, in which more than one real person can be a part of the same VR venue, either physically separated or, more interestingly, in the same physical space. And, eventually, on the holodeck, ‘computer-run program Bunny-1204’ — no headset required.
“Normalizing for technology, Caligula, we are arriving! With lots of profit to be made at every step… somebody’s gonna do it.
“I would go other places, but things like VR in product development, medicine, Earth and space exploration and a host of other apps just aren’t as glitzy to the sheeple. Too many of who are voters.”
The 5: Caligula?
Apropos of nothing, “I’ve just finished my first pornographic film,” said the late Sir John Gielgud in 1979 — shortly before the release of Caligula, produced by the equally late Penthouse publisher Bob Guccione.
Maybe someone will decide to re-shoot it in VR…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Which brings us back to the — uhhh — salacious investment case for VR.
If you find suggestive sexual content disgusting and objectionable, don’t click here.
If you’re not faint of heart, however, this 11-second video could change your finances forever. That’s because the technology behind what you’re about to see could explode into a $30 billion industry by 2020.
Some people could get very rich off of this. Click here to watch this “Not Safe For Work” 11-second video.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

Recent Alerts

No Vax, No Social Security

Power elites want Social Security benefits contingent on getting a COVID vaccine? Read More

Vaccine Precedent

The Delta variant is “considerably more contagious than the original… virus,” says our science-and-technology maven Ray Blanco. And Israel takes an unprecedented step… Read More

Billionaire Egos = Everyone’s Progress

“Don’t think of Branson’s and Bezos’ trips as just a joyride,” says Ray Blanco. “They were also stepping stones to something better.” Read More

Beyond the iPhone

The five biggest publicly traded U.S. companies all report earnings this week. Apple is the biggest of the bunch, yes… but also among the weakest. Read More

Two FAANG Standouts (for Your Portfolio)

“I never would have imagined writing this a year ago,” says our retirement specialist Zach Scheidt. FAANG stocks are compelling again… Read More

The Dollar Mystery

It is perhaps the market mystery of the summer: Why is the U.S. dollar so strong relative to the globe’s other major Read More

Economic Warfare Update (Pipeline and Tanker Edition)

The U.S. government is retreating on one front of global economic warfare… and advancing on another. Read More

Crocodile Tears for Wrecked Retirements

This guy again? BlackRock CEO Larry Fink tells Mr. and Mrs. Middle America how to get by in the world he and his other billionaire friends have created. Read More

Monday Massacre

A 10–20% market correction can have more than one catalyst… It doesn’t have to be just a resurgence of the pandemic. Read More

Playing Chicken in D.C. [Crash Alert]

As long as Congress and the White House keep spending and pumping out new debt that the Federal Reserve can print money to buy, the economy’s all good… Right? Read More