End of Banker Immunity?

Simon Jenkins, columnist for the Guardian:

"There seems no end to the immunity -- moral, political, fiscal and possibly legal -- claimed by the present masters of the universe, the bankers. ... There must surely be a reckoning one day for loss and agony that the credit crunch has inflicted -- and is still inflicting -- on millions of innocent victims. But as we seek out the guilty men, we should know that as long as banking retains its stranglehold on policy, the disaster will continue."
This headline, for a column in the Telegraph by Jeremy Warner, takes the cake: "After Barclays, the Golden Age of Finance Is Dead." (It was still alive only a few days ago? Who knew?) Warner writes:
"Just when you thought bankers could sink no lower in public regard, they’ve done it. News that Barclays has been found guilty of repeatedly falsifying the interbank rate –- sometimes for the personal gain of traders, sometimes to make the bank itself seem more creditworthy than it really was –- tops off another calamitous week in the seemingly never-ending litany of banking misdemeanors.
"Coming hard on the heels of the chaos surrounding an IT breakdown at Royal Bank of Scotland, it is as if bankers are actively out to confirm their reputation for recklessness, incompetence and self-enriching disregard for the interests of customers and the wider economy.
"At a time when the political and regulatory backlash against finance is already at fever pitch, much of it ill-thought out, counterproductive and economically harmful, there could scarcely have been a more spectacular own goal."
And here I thought Occupy Wall Street's criticisms of bankers were tough. Hell hath no fury like a financial columnist scorned.

Ill Informed Banker Bashing

William Wright, columnist for Financial News:
"In more than 15 years of writing about the financial markets, I have regularly tried to defend the industry against often ill-informed banker-bashing. Attacks on bonuses have deliberately inflated the numbers and neglected the fact that pay is coming down faster than it looks. Synthetic outrage from politicians has sought to disguise their own failings. And wilder claims that the banks are uniquely responsible for the crisis ignore the willing role played by everyone from investors and regulators to governments and individuals who were swept up in a collective debt-fueled euphoria."

"But in this instance, it is impossible to defend the indefensible. This breach too far will have devastating consequences not only for Barclays, but for the rest of the industry and its increasingly eroded relations with regulators and politicians as they rewrite the rules of the global financial system."

Banks Antitrust

Antitrust Concerns
The five biggest U.S. banks accounted for 52 percent of the industry’s assets in 2010, up from 17 percent in 1970, according to a report this year by the Dallas Fed. Four banks account for 93 percent of the notional derivatives holdings in the U.S. banking system, according to the Office of the Comptroller of the Currency. Wells Fargo, the fourth-biggest U.S. bank, made 33.9 percent of the mortgage loans originated in the first quarter, the highest share ever recorded and more than triple its closest competitor, according to Inside Mortgage Finance.

Soros-- Do you agree?

“There is a disagreement on the fiscal side,” Soros, 81, said in an interview with Bloomberg Television’s Francine Lacqua at his home in London. “Unless that is resolved in the next three days, then I am afraid the summit could turn out to be a fiasco. That could actually be fatal.”

Math and Achieving Your Dreams:

If a person invested $500,000 15 months ago with my firm they would have 40% gain in their account. The total value of your account would now be over $700,000? If you think we are risk taking you are wrong. My clients are extremely happy.

What is your time and your entire life savings worth to you?

Do you love money or people?

Are you sincere about achieving your dreams or you avoiding the pain that comes with change?

Is your love of security really a life of fear?

Is your home your home your castle or your cave?

If you have a financial advisor who has returns that exceed 20% a year you already know there is a shortage of people that are capable of this kind of performance?

You say you care about your life but in financial terms but your portfolio says otherwise? Where is the growth? You can be a poor saver and still be better off with outstanding investment performance.

Sell Microsoft Stock...

The last time Microsoft opted to make its own hardware because its partners weren’t gaining traction against Apple, the company produced the Zune music player. It didn’t fare any better against the iPod, and Microsoft discontinued the product last year.

Spanish Yields

Spain, which has asked euro-region governments for as much as 100 billion euros to help shore up its banks, reported yesterday that bad loans jumped in April to 8.72 percent of total lending, the highest since 1994. The 10-year Spanish yield surged above 7 percent. Group of 20 nations are discussing a mix of measures, including deficit reduction for some countries and pledges for additional stimulus by others with sounder finances, a Canadian official said as leaders prepare for a two-day summit in Mexico.

Do You Agree with Krugman on Greece?

Greece as Victim Greece as Victim

Household Wealth and Median Income Fell

This week, the Federal Reserve dropped two bombshells—the news that from 2007 to 2010 household wealth dropped 39% to a level last seen in 1992 and the smaller but perhaps more fraught headline that median income fell 8% in those three years.

The fall of median family net worth to $77,300 from $126,400 is mostly a real estate phenomenon; homeowners certainly feel less wealthy and the statistic reminds Americans that happy days have yet to return.

Major Shock

‘Major Shock’
Canada faces a “major shock,” and global financial conditions could deteriorate significantly if Europe’s crisis worsens, the country’s central bank said yesterday. Bank of Japan (8301) Governor Masaaki Shirakawa said June 13 that the euro area poses the biggest challenge to the world’s No. 3 economy. The BOJ today kept monetary policy unchanged, while saying it will be giving “particular” attention to global market developments.

Euro Warning

Central banks intensified warnings that Europe’s failure to tame its debt crisis threatens to roil the world’s financial markets and economy as Greece’s election in two days looms as the next flashpoint for investors.

We Told You So

We told you so, economists say of euro zone

Euro Zone

We told you so, economists say of euro zone /via @globeandmail http://m.theglobeandmail.com/report-on-business/economy/euro-crisis/we-told-you-so-economists-say-of-euro-zone/article4247717/?utm_source=twitter.com&utm_medium=Referrer:+Social+Network+/+Media&utm_campaign=Shared+Web+Article+Links

Does Trickle Down Work?

http://www.huffingtonpost.com/mobileweb/2012/06/13/robert-reich-defends-rais_n_1593427.html

Really? Keep dreaming....

Goldman Sachs Group Inc. (GS) predicted a 29 percent return over the next year from the Standard & Poor’s GSCI Enhanced Commodity Index, led by energy and industrial- metals investments.

Merrill Lynch

Merrill Lynch ads on Bloomberg TV say their financial advisors will help you reach your financial goals? Are you closer to your financial goals?

My guess is are getting further away from your goals? What you can do is find those that are making money?

Idea

You want the idea so bad you are willing to pay any price.

Double Squeeze

Pension funds across the U.S. are facing an unprecedented double squeeze: Baby boomers entering retirement are placing growing demands on resources, while investment returns during the past decade have dropped. Nationwide, public pensions faced more than $4 trillion in unfunded liabilities as of October, according to Joshua Rauh of Northwestern University.

Gold Bear Market

In October, Bank of America forecast $2,000 by early 2012. Goldman predicted in December that gold would reach $1,840 by early June. Barclays and Morgan Stanley said in January that it would average $1,850 and $1,810 this quarter. The metal actually averaged $1,619 since the end of March. Goldman now expects prices to reach $1,940 in 12 months. Barclays predicts an average of $1,790 in the fourth quarter, and Morgan Stanley forecasts $2,000 in the final three months.

Gold fell 19 percent by May 16 from its closing high of $1,891.90 in August, within 1 percentage point of the common definition of a bear market. Prices then touched a five-month low of $1,523.90 on Dec. 29. After rallying 3.7 percent on June 1, the metal is now up 4.5 percent since the start of January to $1,637.20 today, extending an 11-year bull market.

Hubris and Legacy

Most of Merrill Lynch's and the Wealth Management industry's strategy is centered on the hubris of leaving wealth to your children and their experience (without any track record.) They have totally forgotten how to invest. All you have to do is look at BlackRock returns. What a joke!!!

Loser Leaves with Tail Between His Legs

I was asked by a manager at Merrill Lynch if I thought I was smarter than Bob Doll of BlackRock? Why don't you ask my clients how they are doing?


Doll, known for his bullish stance on stocks, said in January that U.S. equities would produce double-digit returns in 2012. The benchmark Standard & Poor’s 500 Index advanced 1.6 percent this year through June 4. Fink, who co-founded BlackRock in 1988, has been touting equities while warning about the dangers of staying in cash-like products and focusing on short- term investing.

Options on Interest Rates

“Everybody had been using options over the last six months to position for higher rates with almost nobody buying them to hedge lower rates,” said Piyush Goyal, a fixed-income strategist in New York at Barclays Plc, in a telephone interview on May 29. “All of that has changed.”

Airlines Need to Adapt

Why U.S. Airlines Need to Adapt to a Slow-Growth Future

As the economy recovers and fuel prices ease, U.S. airlines are doing better. Prospects for the summer and the rest of 2012 look brighter, particularly because there are fewer carriers after the mergers of the last five years.

Yet U.S. airlines face a long-term challenge that should concern industry executives as well as investors. That impediment isn’t wages, fuel prices or a stagnant economy. It’s growth in demand for air travel, which has been anemic at best for more than a decade, even when the economy was expanding.

Steadily dropping fares are the only reason traffic has grown at all since 2000. And without substantive cost-cutting innovation in the industry, that pace isn’t sustainable. Coca- Cola Co. can’t increase its business through constant price cutting, and neither can airlines. If inflation-adjusted fares hadn’t dropped 17 percent from 2000 to 2010, my research suggests that domestic travel would have declined.

To understand why this is happening, just think about the last time you flew. It’s a fair guess that the trip took longer than the same journey would have taken 30 years ago and was less comfortable. In-flight entertainment is better today -- TVs and Wi-Fi -- but almost everything else is worse: less leg room, less food, less service, more-crowded planes and more time wasted getting through the airport.

Commuting Time

You might think air travel is like other luxury goods in that people will want more of it as they get richer. That’s not necessarily true because consuming air travel takes time, and that is something we aren’t getting more of. Among experts who study commuting, there is a rule of thumb that in any society the average commute to work -- whether by foot, donkey or automobile -- is about 20 to 30 minutes. The explanation is that financial budgets might expand, but we still only get 24 hours each day.

As a person moves from poor to middle class, they probably will want to travel more. This is why air travel is growing rapidly in the developing world. But as a person’s wealth continues to increase, they probably won’t want to spend more time in airports and on airplanes. Life is too short.

The same goes for business travel. As a company grows, it doesn’t retain all its workers in one location and require them to travel more. Instead, it opens up satellite offices closer to its customers. Why? Because flying is expensive downtime.

Airlines (UAL) find themselves in this dead end because there has been almost no industry innovation in decades that has improved the customer experience. That’s why airlines can still fly airplanes that were manufactured 30 or more years ago. (Safety is better than it was in 1980, but it was actually quite good then, and few people were deterred from flying by safety concerns.)

If airlines are going to overcome the time barrier to growth in demand, air travel has to take less time or be less unpleasant.

Sadly, the prospects for increasing flying speeds aren’t good. The only commercial airliner ever to fly faster than sound, the Concorde, was grounded almost a decade ago. There are no imminent plans to bring back supersonic transport, partly because it requires much more expensive technology and is even less spacious than standard jetliners. In any case, the sonic booms they created meant they couldn’t fly faster than sound over populated areas.

The only real hope for shrinking travel time is on the ground. Security screening may improve, allowing you to get to the gate more quickly. And air-traffic control may finally adopt modern technology -- a slightly higher-tech version of the global positioning system available in automobiles -- that reduces congestion and keeps more flights on time. But even in the best-case scenario, the flying and airport time from New York to Los Angeles will be about the same as it was in 1980.

Less Painful

The airlines are trying to make travel time less painful, but so far the results aren’t too impressive. Wi-Fi and TVs are nice, but the real barrier to making travel time more fun or productive is space. Squeezed between two strangers, wondering when the seatback you are facing will suddenly slam into your knees (or into your laptop), isn’t a good environment for relaxation or getting work done. The newest major airlines -- JetBlue Airways Corp. (JBLU) and Virgin America Inc. -- seem to recognize this. They are increasing leg room and leading innovation in in-flight entertainment.

For the most part, the legacy airlines are just giving up on domestic-demand growth and focusing instead on international travel, where prospects are better, at least for now. One U.S. airline chief executive officer recently told me that his company merely hoped to break even on service within the U.S., which he regarded as a tool to feed lucrative international flights.

That strategy is problematic because U.S. carriers only have the right to fly to and from the U.S., not within or between other countries. And even on those routes, there are strong home-country carrier biases: Americans prefer U.S. airlines on a trip to Korea, and Korean travelers tilt toward their own jetliners when coming to the U.S. So, with American travel demand closer to saturation, the biggest growth will be among the markets and customers most difficult for U.S. carriers to reach. Growth prospects may be better than inside the U.S., but they are still not great.

This doesn’t mean U.S. carriers can’t make money. Many companies earn a good living in low-growth markets by focusing on serving existing customers, with higher quality and at lower cost. Those companies don’t get the thrill, or the earnings growth, of being out in front to catch the next demand spike. Still, that’s likely to be the slow-growth environment of the future for the U.S. airline business.

(Severin Borenstein is E.T. Grether professor of business administration and public policy at the Haas School of Business at the University of California, Berkeley. He is a contributor to Business Class. The opinions expressed are his own.)

Read more opinion online from Bloomberg View. Subscribe to receive a daily e-mail highlighting new View columns, editorials and op-ed articles.

Today’s highlights: the View editors on smarter, lighter cars and smarter health spending; Albert R. Hunt on the virtues of Dwight D. Eisenhower; William D. Cohan on delusional Facebook investors; David Crane on politicians and unions; A. Gary Shilling on Japan’s strong currency and weak economy; Marc Joffe and Anthony Randazzo on mortgage investors.

To contact the writer of this article: Severin Borenstein at borenste@haas.berkeley.edu

To contact the editor responsible for this article: Max Berley at mberley@bloomberg.net

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Copper Futures

Copper futures fell 3.9 percent last week, touching $3.30 a pound on the Comex in New York, the lowest for a most-active contract since Dec. 20. The metal has dropped 19 percent in the past year. Speculators more than doubled their bets on lower copper prices last week to 6,757 contracts, the most bearish since Nov. 29, CFTC data showed.

@TylerInvestment Predicted Deflation

Twenty of the materials tracked by the S&P GSCI declined last week. Crude oil tumbled 8.4 percent and reached the lowest price in almost eight months, while cotton slumped to a 27-month low. Nickel led the declines in base metals, dropping 5.6 percent. Wheat dropped 10 percent even as hedge funds became the most bullish since June 2011. Crude extended its slump today, falling 0.9 percent to $82.48 a barrel.

The S&P 500 has declined 9.9 percent since reaching a four- year high of 1,419.04 on April 2

The S&P 500 has declined 9.9 percent since reaching a four- year high of 1,419.04 on April 2, trimming its advance since last year’s low on Oct. 3 to 16 percent. That compares with a 14 percent drop in the Stoxx Europe 600 Index (SXXP) since its 2012 peak, a retreat that cut the advance since its low of 214.89 in September to 9.4 percent.
Changing Tone