FORMER EXECUTIVE AT FLORIDA-BASED LENDER PROCESSING SERVICES INC. ADMITS ROLE IN MORTGAGE-RELATED DOCUMENT FRAUD SCHEME


An event of extreme importance to the housing market has just happened; below is the Department of Justice press release made public at 5.01 pm today.

This will have tremendous impact on Banks, Servicers, Remic underwriters and most importantly will have a chilling effect on foreclosure proceedings nationwide.

Obviously thousands and thousands of homeowners have been deprived of their homes in proceedings tainted by these fraudulent documents.

And just as importantly many hundreds of thousands of mortgages and notes secured by them that were "lost" and replaced with fraudulently created documents that might have been used to effect transfer of these documents into various pools of mortgages subsequently sliced, diced and sold worldwide based on their legally owning these mortgages, will have to be scrutinized for validity.

And then, of course, the tax status of REMICs will also be brought into question if it turns out that they  contain mortgages that were transferred based on these fraudulent documents.

This is just the beginning of the next mortgage crisis.... and this one may lead to the failure of a major bank.

In the spotlight will be Bank of America and of course Wells Fargo to name just two of the biggest players.


Time for the Fed to step in and take care of this mess once and for all - after all it is the trade organization that represents the interest of it members only - the banks in the USA!

______________________________________________________________________________

FOR IMMEDIATE RELEASE                                                                                                CRM

TUESDAY, NOVEMBER 20, 2012                                                                        (202) 514-2007

WWW.JUSTICE.GOV                                                                                    TTY (866) 544-5309

FORMER EXECUTIVE AT FLORIDA-BASED LENDER PROCESSING SERVICES INC.

ADMITS ROLE IN MORTGAGE-RELATED DOCUMENT FRAUD SCHEME

Over 1 Million Documents Prepared and Filed with Forged and False Signatures, Fraudulent Notarizations

WASHINGTON – A former executive of Lender Processing Services Inc. (LPS) – a publicly traded company based in Jacksonville, Fla. – pleaded guilty today, admitting her participation in a six-year scheme to prepare and file more than 1 million fraudulently signed and notarized mortgage-related documents with property recorders’ offices throughout the United States.

The guilty plea of Lorraine Brown, 56, of Alpharetta, Ga., was announced by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney for the Middle District of Florida Robert E. O’Neill; and Michael Steinbach, Special Agent in Charge of the FBI’s Jacksonville Field Office. 

            The plea, to conspiracy to commit mail and wire fraud, was entered before U.S. Magistrate Judge Monte C. Richardson in Jacksonville federal court.  Brown faces a maximum potential penalty of five years in prison and a $250,000 fine, or twice the gross gain or loss from the crime.  The date for sentencing has not yet been set.

            “Lorraine Brown participated in a scheme to fabricate mortgage-related documents at the height of the financial crisis,” said Assistant Attorney General Breuer.  “She was responsible for more than a million fraudulent documents entering the system, directing company employees to forge and falsify documents relied on by property recorders, title insurers and others.  Appropriately, she now faces the prospect of prison time.”

            “Homeownership is a huge step for American citizens,” said U.S. Attorney O’Neill.  “The process itself is often intimidating and lengthy.  Consumers rely heavily on the integrity and due diligence of those serving as representatives throughout this process to secure their investments.  When the integrity of this process is compromised, illegally, public confidence is eroded.  We must work to assure the public that their investments are sound, worthy, and protected.”

            Special Agent in Charge Steinbach stated, “Our country is increasingly faced with more pervasive and sophisticated fraud schemes that have the potential to disrupt entire markets and the economy as a whole.  The FBI, with our partners, is committed to addressing these schemes.  As these schemes continue to evolve and become more sophisticated, so too will we.”

Brown was the chief executive of DocX LLC, which was involved in the preparation and recordation of mortgage-related documents throughout the country since the 1990s.  DocX was acquired by an LPS predecessor company, and was part of LPS’s business when LPS was formed as a stand-alone company in 2008.  At that time, DocX was rebranded as “LPS Document Solutions, a Division of LPS.”  Brown was the president and senior managing director of LPS Document Solutions, which constituted DocX’s operations. 

DocX’s main clients were residential mortgage servicers, which typically undertake certain actions for the owners of mortgage-backed promissory notes.  Servicers hired DocX to, among other things, assist in creating and executing mortgage-related documents filed with recorders’ offices.  Only specific personnel at DocX were authorized by the clients to sign the documents.

According to plea documents filed today, employees of DocX, at the direction of Brown and others, began forging and falsifying signatures on the mortgage-related documents that they had been hired to prepare and file with property recorders’ offices.  Unbeknownst to the clients, Brown directed the authorized signers to allow other DocX employees, who were not authorized signers, to sign the mortgage-related documents and have them notarized as if actually executed by the authorized DocX employee.

Also according to plea documents, Brown implemented these signing practices at DocX to enable DocX and Brown to generate greater profit.  Specifically, DocX was able to create, execute and file larger volumes of documents using these signing and notarization practices.  To further increase profits, DocX also hired temporary workers to sign as authorized signers.  These temporary employees worked for much lower costs and without the quality control represented by Brown to DocX’s clients.  Some of these temporary workers were able to sign thousands of mortgage-related instruments a day.  Between 2003 and 2009, DocX generated approximately $60 million in gross revenue.        

            After these documents were falsely signed and fraudulently notarized, Brown authorized DocX employees to file and record them with local county property records offices across the country.  Many of these documents – particularly mortgage assignments, lost note affidavits and lost assignment affidavits – were later relied upon in court proceedings, including property foreclosures and federal bankruptcy actions.  Brown admitted she understood that property recorders, courts, title insurers and homeowners relied upon the documents as genuine.

            Brown also admitted that she and others also took various steps to conceal their actions from clients, LPS corporate headquarters, law enforcement authorities and others.  These actions included testing new employees to ensure they could mimic signatures, lying to LPS internal audit personnel during reviews of the operation in 2009, making false exculpatory statements after being confronted by LPS corporate officials about the acts and lying to the FBI during its investigation.  LPS closed DocX in early 2010.

            This case is being prosecuted by Trial Attorney Ryan Rohlfsen and Assistant Chief Glenn S. Leon of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Mark B. Devereaux of the U.S. Attorney’s Office for the Middle District of Florida.  This case is being investigated by the FBI, with assistance from the state of Florida’s Department of Financial Services.  

Today’s conviction is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants, including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

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               Do we need the banks in their traditional form anymore?

Ben Bernanke has told “close friends” he may not stand for re-election even if President Obama wins, the New York Times reports.

Bernanke’s term as Federal Reserve chairman ends Jan. 2014. This may be the perfect time to switch to true Cloud Banking.


Some Landmarks to ponder in the era of negative real interest rates:

 On January 2 2011 the 13 week Treasury Yield (3 months)was was 0.12%.

 On July 2 2011 (the announced end of QE 2) this yield was still 0.01%.

 On January 2nd 2012 the 13 week Treasury Yield (3 months)was 0.001%. 

 By September 17th 2012 - the date that QE3 was announced the yield had gone up to 0.09%.

 Today October 23 2012 it stands at 0.10%  - that is an increase in yield of 99 basis points (nearly a full 1%!).

During all this time inflation as reported by "official" Government sources was far in excess of this 1% yield. So the stated goal of preventing deflation is achieved - inflation is definitely with us.

Also: money supply in the USA and Worldwide has exploded exponentially.

         deficits have continued to exceed a trillion dollars in the USA
         
            unemployment remains stubbornly above 8% in the population of       
              people still seeking work in the USA.
             
                real estate is barely budging off the bottom and the number of 

                   "underwater" mortgages has barely stopped declining.

The Fed balance Sheet has also exploded, tripling in size.

The fed achieved its goal of preventing deflation. What has this all done for the US economy and the rest of the world economies?

    the US dollar is worth significantly less than two QE's ago.

    The stock markets are up significantly as is the price of precious metals measured in US dollars. 

Is this the purpose of QE? 

Doesn't look good for QE3 that started a month ago, does it? we are very far from suffering from deflation.

And the US big banks are wildly profitable again....

     Why are you surprised? The shareholders of the Fed are exclusively banks.
The Fed was set up in 1913 to ensure the survival of the banking system. 

The Fed is wildly successful in that primary mission. That is the true purpose of all this QE.

A Government granted monopoly to print money, and manipulate interest rates primarily benefit the Fed's owners. Not the citizens of this country.

It creates money out of thin air and lends it to its member banks (and anyone else deemed qualified to play in this sandpit) and allows these banks to use the bulk of this funding to buy Government issued debt  that pays a significantly higher interest rate back to the banks and voila!!

The banks make a "riskless" positive return! They get healthier and the population languishes in stubborn unemployment, and inflation in a stagnant economy.

Do we need the banks in their traditional form anymore? 

In this electronic age where the chance of getting a loan depends on a mystifying creditworthiness determining algorithm.....

Why not simply apply to a credit rating agency and skip the banks altogether?

Why not have Google or Microsoft or Heaven Forbid, Facebook just set up a server farm and have everyones' earnings deposited into an electronic cloud account? Or dare I say it - have the IRS do this.

Then the individual could choose to lend his excess balance to whomever he/she pleases using the magic creditworthiness algorithm. All funds transfers once approved are made electronically between the accounts in the cloud.

The IRS gets to track everything and remove its share from the repayments as they are made (getting rid of the need for a whole layer of Taxpayer paid pencil pushers).

Ads are sold to cover the cost of the server farms and of course add to the taxable revenues to be collected.

Think of the benefits! 

We will know second by second how much revenue the Government has to squander er spend on "investments". 

Putting the Government on the same system will allow us to watch, second by second, how much the Government actually spends in real time. And to whom the money was transferred.

Instant budget deficit/surplus calculation to be displayed on the famous Debt Clock.

Instant accountability for the expenditures! 

No more crooked politicians, or devious lobbyists or foreign money inflows influencing elections!! No more corruption or tax evasion. Complete transparency for every aspect of your life.

Privacy? Who cares.. you lost that years ago.

I can but dream.





     

  This is a 28min video from Grant Williams of Vulpes Investment management (Singapore hedge fund managers). Grant is the author of the much acclaimed Things that make you go Hmmmmmmm!. The presentation details two bubbles, one about to burst and the other about to inflate enormously.
There is much money to be lost in the bursting by the unwary and conversely a great deal to be made by hitching a ride up with the other.

LINK to YouTube here: 

QE2 in round trillions

As commenbted on by Ambrose Evans-Pritchard in The Telegraph September 20th.(Ambrose Evans-Pritchard has covered world politics and economics for 25 years, based in Europe, the US, and Latin America. He joined the Telegraph in 1991, serving as Washington correspondent and later Europe correspondent in Brussels. He is now International Business Editor in London)

"Here is a back-of-an-envelope guess by David Greenlaw at Morgan Stanley on what the Fed can expect from a second blitz of bond purchases, or `Shock & Awe’ as he calls it.
If Ben Bernanke does a further $2 trillion (on top of the $1.7 trillion already in the bag) the yield on 10-year US Treasuries will drop 50 basis points to around 2.2pc.
GDP growth will be 0.3pc higher than otherwise in 2011 and 0.4pc higher in 2012.
The unemployment rate will be 0.3pc lower in 2011 and 0.5pc lower in 2012 — (in other words drop from 9.6pc to 9.1pc, ceteris paribus).
That looks like trivial returns for a collosal adventure into the unknown, with risks of dollar flight and mounting Chinese suspicions that the US intends to default on its external debts by debasement."

Amen

click heading for link to full story

Federal Reserve

News Alert
from The Wall Street Journal


The Federal Reserve hinted it is becoming uneasy about the outlook for the U.S. economy in 2011, but deferred taking any new steps to boost the recovery amidst intense internal debate about what to do next.

Fed officials signaled at the end of their one-day policy meeting they are uncomfortable with the recent very low levels of inflation and said they expect the economy's recovery from a deep recession to be modest in the near term. This indicates that more bond purchases to stimulate growth could soon take place.

http://online.wsj.com/article/SB10001424052748704129204575506002119786026.html?mod=djemalertNEWS

Fed might no longer have control of the fed-funds rate

Worth thinking about who might be in control when the Fed loses it? Mr. Market? Politicians? Burocrats? Heaven help us!

Benn Steil and Paul Swartz, director of international economics and an analyst, respectively, at the Council on Foreign Relations, explain how the Federal Reserve has sustained "extraordinary lending and monetary policies," as Chairman
Ben Bernanke put it, by reinvesting proceeds from its mortgage-bond portfolio. Eventually, the Fed must exit from such stimulus, with the strategy involving a transformation, Steil and Swartz write. The plan also implies that the central bank will not be able to control any interest rate, including the federal-funds rate.
The Wall Street Journal (click on heading above for full article)

The Day after the Fed announcement: uncertainty

Courtesy of Kimberly DuBord, Briefing.com

Kimberly DuBord is the Director of Research for Briefing Research, Briefing.com's new strategic investment research service. To request a free trial please email researchsales@briefing.com.

It is the morning after the FOMC meeting and market participants globally are feeling a renewed, heightened level of uncertainty. U.S. equity futures are pointing to over a 100-point drop in the Dow, while the Treasury market strengthens with 10-year yields falling to 2.72%. The global risk appetite has evaporated with crude falling and gold and the yen gaining ground.

The Fed's policy statement Tuesday did little to alleviate double-dip concerns. In actuality, it may have fanned the fears of a downturn.

The directive from the FOMC suggests to us that the Fed is as uncertain about the outlook as the rest of us, especially when taking into account the Aug. 2 speech from Chairman Bernanke who thought then that growth in real consumer spending seemed likely to pick up in coming quarters. In any event, waffling by the Fed is not a confidence builder.

There is clear disconnect amongst Fed members with St. Louis President James Bullard and the Kansas City President Thomas Hoenig taking opposite views. While Hoenig is arguing for a contraction in the Fed's balance sheet and more restrictive language, Bullard is arguing for moves to prevent deflation.

The FOMC decided to keep the Fed's balance sheet steady, choosing to reinvest maturing principal payments from agency debt and MBS in Treasuries. The markets' reaction reflects disparate signals. The fact that the Fed still has to act in a stimulative manner at this point in the process is contributing to concerns that this will be a protracted recovery.

The equity, bond, and currency markets are being re-priced accordingly.

The yen hit a 15-year high against the dollar at 84.73 -- causing a sell-off in the Nikkei. The dollar made gains against the euro and pound, with the U.S. Dollar Index holding above 81.50. Commentary from the Paris-based International Energy Agency of "significant' risks to an economic downturn is only adding more downward pressure to oil prices, which has little fundamental footing above $80 per barrel in this economic climate.

Add in a downbeat growth forecast and slowing inflation forecast from the Bank of England, coupled with weaker economic data in China only stoking the "slower for longer" fires further. The BOE forecasted inflation of 1.5%, under its stated goal of 2.0%, while growth is now targeted to peak at 3.0%, below its May estimate of 3.6%.

The economic data out of China is holding influence over the market. While data ranging from industrial production to retail sales and new lending came in generally as expected, market participants are taking note of the downturn in economic activity. The fears of a hard landing remain close to the surface. For their part, local market participants took a more benign view of the data, lifting stocks despite broad-based declines in the rest of Asia overnight. China has, thus far, executed a "soft landing."

Fed set to downgrade outlook for US

We wait with bated breath for Wednesdays Fed Statement.

By James Politi in Washington Full article in Financial Times (click heading above)

Published: August 8 2010 19:15 | Last updated: August 8 2010 19:15


"The Federal Reserve is set to downgrade its assessment of US economic prospects when it meets on Tuesday to discuss ways to reboot the flagging recovery.

Faced with weak economic data and rising fears of a double-dip recession, the Federal Open Market Committee is likely to ensure its policy is not constraining growth and to use its statement to signal greater concern about the economy. It is, however, unlikely to agree big new steps to boost growth."

The Fed has few policy choices left

The Fed has few policy choices left in a world where deflationary forces continue to grow and US domestic growth is in trouble. Government stimulus doesn't work and has only weakened the US economy, helping to make monetary policy impotent. Thus, an implicit weak dollar policy may be very high on the Fed's list of tools it has left to use.
The big trigger for a decline in the US dollar last time was the announcement of the Feds' Quantitative Easing program. Stay tuned.

 Low interest rates start to hit profits at large banks

The Federal Reserve's monetary policy of maintaining low interest rates for an extended period has helped boost earnings at banks such as JPMorgan Chase and Bank of America. However, the policy is starting to make it more difficult for the major lenders to generate profit. "That's the gift from the Fed," Christopher Whalen, co-founder of Institutional Risk Analytics, said of the interest rate. "But at the same time, the cash flow on your assets eventually starts to re-price and match the low-rate environment. The zero-rate environment is eventually bad for everybody." Bloomberg

Bernanke discusses the Fed's stance on economic uncertainty

Ben Bernanke, chairman of the Federal Reserve, said the central bank is prepared to stimulate growth if the U.S. economy deteriorates, but officials are also ready to increase interest rates and rein in its balance sheet. "We will continue to carefully
assess ongoing financial and economic developments, and we remain prepared to take further policy actions as needed to foster a return to full utilization of our nation's productive potential in a context of price stability," Bernanke told the Senate banking committee. Bloomberg

"Inflating War: Central banking and militarism are intimately linked".

The Great Depression of 1920 only lasted one year, however, thanks to President Warren Harding’s inspired policy of cutting both government spending and taxes dramatically.

A most urgent question : will the current President have the courage to do what is right for the good of the nation as Warren Harding did, or will he succumb to baser instincts and refuse to cut spending and taxes dramatically?

Thomas DiLorenzo lays out the disasterous historical connection between politics, militarism and central banking. Heed the warnings contained or this nation will again see its wealth devestated.

Government can finance war (and everything else) by only three methods: taxes, debt, and the printing of money. Taxes are the most visible and painful, followed by debt finance, which crowds out private borrowing, drives up interest rates, and imposes the double burden of principal and interest. Money creation, on the other hand, makes war seem costless to the average citizen. But of course there is no such thing as a free lunch.

As a general rule, the longer a war lasts, the more centrally planned and government-controlled the entire economy becomes. And it remains so to some degree after the war has ended. War is the health of the state, as Randolph Bourne famously declared, and the growth of the state means a decline in liberty and prosperity. (Think Socialism, Communism, Totalianarism as epitomized by North Korea, Nazi Germany...who would want to live in a regime like those?)

Special interests joined the political coalition that created the Federal Reserve Board in 1913, which became an important source of finance for America’s disastrous participation in World War I four years later. The Fed did not just print greenbacks, as was the case during the Civil War. It printed enough money to purchase more than $4 billion in government bonds that were used to finance the war. The amount of money in circulation doubled between 1914 and 1920—as did prices. This was an enormous hidden war tax on the American people: wealth was cut in half, along with real wages, and just about everything consumers purchased became more expensive.

The boom created by the Fed’s war financing inevitably caused a bust—the Depression of 1920, the first year of which was even worse than the first year of the Great Depression of the 1930s. Gross domestic product declined by 24 percent from 1920-21, while the number of unemployed Americans more than doubled, from 2.1 million to 4.9 million. The Great Depression of 1920 only lasted one year, however, thanks to President Warren Harding’s inspired policy of cutting both government spending and taxes dramatically.

Fed's volte face sends the dollar tumbling,economy in decline, QE II to start soon?

The very respected Ambrose Evans-Pritchard writes in the Telegraph fom London:

"Rarely before have a few coded words in the minutes of the US Federal Reserve caused such an upheaval in the global currency system, or such a sudden flight from the dollar."

I also note that "quantative easing" is mentioned in this article.

The Fed minutes warned of "significant downside risks" and a possible slide into deflation, an admission that zero interest rates, $1.75 trillion of QE, and a fiscal deficit above 10pc of GDP have so far failed to lift the economy out of a structural slump.

"The Committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably," it said. The economy might not regain its "longer-run path" until 2016.

"The Fed is throwing in the towel," said Gabriel Stein, of Lombard Street Research. "They are preparing to start QE again. This was predictable because the M3 broad money supply has been contracting for months."

The Fed minutes amount to a policy thunderbolt, evidence of how quickly the recovery has lost steam. Just weeks ago the Fed was mapping out withdrawal of stimulus.

This is a must read. Its a little long but compelling. Click on the heading above for the link.

Recovery does not require more stimulus, Fed officials say

Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, and Richard Fisher, head of the Federal Reserve Bank of Dallas, indicated that although economic growth is cooling, more stimulus is not necessary. Hoenig also reiterated his stance that the Fed should increase its key interest rate to 1% to keep inflation at bay and counter the threat of asset-price bubbles. Meanwhile, Fisher said additional asset purchases by the Fed are not needed.
Bloomberg

Yes Mr Hoenig, it is time for the Fed to stop buying financial assets and to start buying real assets... try real property so that the Dollar is backed by something in addition to gold.

Fed worries about economic slowdown, considers taking a stimulus role

The U.S. Federal Reserve is considering taking a stronger role in boosting economic growth, with Congress deadlocked on how to cope with a troubling slowdown. Options being weighed include buying more mortgage securities and cutting interest paid to banks that are putting funds on deposit with the central bank from 0.25% to zero, giving financial institutions more incentive to loan.
The Washington Post.

As usual the Federal Government is culpablly and dangerously late in diagnosing the problem. Of course banks are not lending to the public.

They would be sued for imprudent business practises by shareholder activists. After all, it is the height of managerial irresponsibility to make loans to risky borrowers when a risk free, high profit margin alternative borrower - The US Treasury - is panting at the door.

No, Mr Geithner, any first year MBA student will identify correctly that the problem is NOT the interest rate paid to banks, it is the very incentive to replace bad mortgage assets with pristine capital so regulatory capital levels are acceptable.

Until the real problem, which is the continual drop in value of the real estate collateral that is the bulk of assets of lending institutions is addressed this kind of Govertnment meddling will make the problem worse and worse.

Bernanke and Geithner, did they deliberately mis-inform Congress?

From a story in Bloomberg today

Fed Made Taxpayers Unwitting Junk-Bond Buyers
By Caroline Salas, Craig Torres and Shannon D. Harrington - Jul 1, 2010

Federal Reserve Chairman Ben S. Bernanke and then-New York Fed President Timothy Geithner told senators on April 3, 2008, that the tens of billions of dollars in “assets” the government agreed to purchase in the rescue of Bear Stearns Cos. were “investment-grade.” They didn’t share everything the Fed knew about the money.

“Either the Fed did not understand the distressed state of some of the assets that it was purchasing from banks and is only now discovering their true value, or it understood that it was buying weak assets and attempted to obscure that fact,” Senator Sherrod Brown, an Ohio Democrat and member of the Senate Banking Committee, said in an e-mail when informed about the credit quality of holdings in the Maiden Lane LLC portfolio. The committee held the April 3 hearing.

If "the Fed did not understand the distressed state of some of the assets that it was purchasing from banks.." then we are allowing incompetent entities and disingenuous people to write rules and spend taxpayer money on another scam perpetrated on we the people by the smartest manipulators on earth.

Market Reflections 2/24/2009

Reassuring comments from Federal Reserve Chairman Ben Bernanke triggered a big afternoon rally in banking shares and a big rally for the stock market. Bernanke downplayed the risk that banks will be nationalized anytime soon, stressing that their greatest value lies in their existing structure. Bank shares, the market's central area of weakness, jumped as much as 20 percent. The S&P 500 rose 4.0 percent to 773.14.

The rush back into risk hurt the dollar which fell more than 1 cent against the euro to end at $1.2850. Treasuries were little changed despite the movement into stocks. Demand was very strong for today's 4-week and especially 2-year auctions. Oil gained as stocks gained, up 3.9% for April WTI to $39.93. Gold fell back after failing to hold $1,000. February gold fell 2.5 percent to $970.50.

Gloom and Doom: The Federal Reserve

The Federal Reserve has revised down its economic outlook for 2009, and warned that the U.S.
is likely to face an especially gradual and prolonged period of recovery once it finally claws its way out of a deep global recession. Minutes from the FOMC’s late January meeting released today show that the Committee predicted the economy will contract this year by 0.5 to 1.3%, and that unemployment will rise to between 8.5 and 8.8%.
The nation’s steep declines in housing, trade, industrial production, spending, and employment rates are expected to overwhelm the government’s stimulus plans as currently proposed.


TREASURIES AND AGENCIES
• Treasuries tumbled across the curve today as the Federal Reserve signaled it does not intend to buy U.S. securities to lower consumer borrowing costs anytime soon. 30-year bonds were little changed throughout most of the day until release of the January 28th FOMC minutes indicated the wait-and-see position. The Committee believes that buying mortgage-backed bonds and agency debt is more likely to have a positive effect on credit markets.
• Tomorrow the government will announce the size of next week’s 2-, 5-, and 7-year note auctions. Market observers expect the total to be $97 billion, coming on the heels of last week’s record $67 billion sale.
• At the market close: UST 10-yrs down to yield 2.76%. UST 2-yrs down to yield 0.95%. USD$$ slightly stronger at $1.2546 vs. the euro and stronger at $93.695 vs. the yen. Gold up strongly to $984.90/ounce. Oil relatively unchanged at $34.62/barrel.

Fed Keeps Target Fed Funds Rate at 0-0.25%

Jan 28: FOMC decided to keep its target range for the federal funds rate at 0 to 1/4 percent, lowest since 1990 when Fed began publishing the rate. Voting against was Jeffrey M. Lacker, who preferred to expand the monetary base at this time by purchasing U.S. Treasury securities rather than through targeted credit programs. The Committee is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets

FOMC: Economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time

So, why is the market moving yields on long dated Treasury bonds UP!!

10:48 am today 10yr treasury yield is 2.687% up 0.023%
30yr treasury yield 3.436% up 0.018%

Market Reflections 1/28/2009

The FOMC statement wasn't a surprise but the stock market's rally may well be described that way. The Dow industrials surged 2.5% on reports that the administration is setting up a "bad bank" that will absorb bad debt from financial institutions. Bank shares posted big gains led by Wells Fargo, up 31 percent, Citigroup, up 19 percent, and Bank of America up 14 percent.

The stock market has been rallying all week, gains however that do not reflect strength in underlying earnings. Earnings in fact are proving significantly weaker than expected as weakness spills out far beyond the financial sector. Many are labeling the gains a bear market rally that could crumble on a run of bad economic news, such as for instance a big drop in durable goods orders or a big spike in jobless claims, reports to be issued tomorrow.

The FOMC statement pointed to a major risk that economic recovery may not take hold this year. The Fed said it will do everything it can to help the economy including kicking off a new program, called TALF, that will be aimed at unlocking credit for consumers and small businesses. The Fed said it may also begin buying Treasuries but it didn't commit itself, a fact that pushed money out of the Treasury market with the 3-month yield up 5 basis points at 0.18 percent and the 30-year up 17 basis points at 3.41 percent.

Huge swelling in stocks of crude oil couldn't hurt oil prices which like stock prices have proven resistant to bad news lately. February crude ended up slightly at $42.28 though talk is heavy in the oil market that prices may soon dip back to last month's $32 - $33 low for the now expired January contract. The move in stocks gave accounts confidence to sell gold which ended about $10 lower at an $889 level that is still very close to $900. The dollar ended little changed at $1.3152 against the euro.