Bill Miller, writing in the FT:

Long-term Treasuries . . . have beaten equities as measured by the S&P 500 in the year to date, and in the 3-, 5-, 10-, 15-, and 20-year time frames. It’s a tie at 25 years. More than 20 years of superior returns over stocks in an asset guaranteed by the US government seems to be sufficient to drive a stake through the heart of the idea that you want stocks for the long term. . . .

It’s a truism in capital markets that the best investments are those that have previously done worst, where expectations are low, demand is down, and prospects appear at best highly uncertain. In 1980, bonds had been through a 30-year bear market relative to stocks, inflation was soaring, yields were at historic highs, yet expected to go higher, and a long bull market in bonds was at hand. . . .

The point here is simple: US large capitalisation stocks represent a once-in-a- lifetime opportunity in my opinion to buy the best quality companies in the world at bargain prices. The last time they were this cheap relative to bonds was 1951. I was one year old then, but did not have sufficient sentience to invest. I do now, and if you are reading this, so do you. [Emph. added.]

Michael Shedlock writes:

Virtually all the banks are against honest reporting. Wells Fargo is leading the pack because of all the nonperforming Pay Option ARM and problem housing assets on its books.

The louder a bank screams, the more unprepared it is to deal with nonperforming loans and mark-to-market valuations of garbage held on its balance sheet.

So if you’re against mark-to-market accounting you’re automatically corrupt and automatically arguing out of bad faith? Convincing!  I’d somehow gotten the impression Wells Fargo doesn’t operate that way. . . . P.S. Those charts Shedlock puts so much stock in, even if the axes on them were labeled properly, aren’t as compelling as he makes them out to be. Actually, they’re not compelling at all. All they tell me is that the industry is set for a rerun of its recovery following the 1991 credit crackup. . .

Bruce Berkowitz, discussing his outlook for the financials, makes a lot of sense:

And, for the last couple of years, companies have gone through tremendous stress, the financials. But today, their balance sheets are stronger than ever, their earnings power, their pre-tax, pre-provisioning power is stronger than ever. And, you have to think about loans and the life of loans. You know, most loans go for between two and five years, whether it’s an individual loan, commercial. So there’s been this two-year stress period of burning through all these bad loans. And at the same time, they’ve had these two years of good loans, because they’re in very stressful periods.

 Oh, and they're cheap. He forgot to mention the stocks are cheap. . .

Jason Schwarz is not happy with how President Obama has treated the banks:   

Obama thought that he didn’t need the bankers, he thought that the cyclical recovery would be strong enough to overcome all obstacles. . . . He thought wrong. The elephant in the room is that Obama needlessly declared war against the financials and his agenda will be repealed because of it.

For what it’s worth, Intrade now puts the Republicans’ chances of re-taking the House this fall at 75%. Agenda-repeal talk seems premature, however. . . .

Gretchen Morgenson is going to love this.

Mozilo approved so many loans that fell outside company guidelines that at least one high-ranking Countrywide executive questioned them, drawing heated responses from Mozilo, according to testimony filed in a Securities and Exchange Commission lawsuit.

The people who got such loans were among a group of Countrywide borrowers known within the company as "Friends of Angelo" or VIP customers.

Countrywide's former chief risk officer, John P. McMurray, testified that his duties normally didn't include hearing about individual loans made by the Calabasas company, which at the time was the nation's largest home lender. But certain large, Mozilo-authorized loans with small down payments, including mortgages totaling $4.8 million for [Tonight Show announcer Ed] McMahon, "got escalated to my attention," McMurray said, because a Countrywide executive wanted him to know about the risk the company was taking with them. McMahon's mortgage wound up in default.

Paying attention to the VIP loans could cause friction. At one point, McMurray testified, Mozilo fumed in an e-mail: "What is McMurray doing looking at this loan? I've already approved it."

In the fullness of time, we now know that the Friends of Angelo program was not a brilliant idea.  But given the severity of the housing collapse, Countrywide would have collapsed anyway, even if Angelo hadn’t had a friend in the world. . . .

SunTrust buys back $750 million of its debt. From TheStreet.com:

 "There are two primary benefits for SunTrust - reducing our funding cost and reducing future income statement volatility," a SunTrust spokesman said in an e-mailed statement on Monday.

 "The notes we've offered to purchase are marked-to-market through earnings under fair value accounting and have created material gains and losses to the income statement in prior quarters," the spokesman said in the statement. "Purchased notes will be retired thereby reducing future earnings volatility." [Emph. added]

Since when is “income statement volatility” an inherently bad thing, business-fundamentals-wise? Banks aren't usually this blatant when they rejigger their balance sheets for the sake of accounting optics. P.S.: Given the state of the bond market lately, the earnings volatility SunTrust is relinquishing is almost certainly volatility to the upside. . .  I totally buy cutting funding costs, though. . .

The more one learns about Kevin Cohee, CEO of OneUnited Bank, the more wonders how in blazes he’s been given the keys to an FDIC-insured depository:

Weeks before his meeting with Treasury officials in 2008, Cohee was also dealing with the consequences of the arrests at the Santa Monica mansion, according to police and court records obtained by The Washington Post. The first arrest, on April 22, 2007, occurred after a woman who was not his wife fled the mansion and drove to a police station to lodge a complaint of violent sexual assault.

The second arrest, on May 15, 2007, involved 17 police officers and resulted from drugs found during the execution of a search warrant "in regards to a sodomy investigation," according to a police report. When they reached the second floor of the house and asked Cohee to come out of the bedroom with his hands up, the door was instead pushed shut. Police kicked it open and found a woman, as well as cocaine and a black tar-like substance in a desk drawer, the report states. It was later determined to be concentrated cannabis, according to court records.

Seventeen cops! Inasmuch as Sheila Bair can be awfully persnickety about who’s qualified to run a bank, I’m amazed she’s allowed this guy to keep his job. . . .

Wilbur Ross talks to Charlie Rose about the outlook for manufacturing in the U.S.  

What I'm worried about is R&D. You have to have new technologies. We think of China as a polluter. Let me tell you, China is the leader in wind power technology. They already are producing 40 percent of all the wind turbines in the world and exporting 80 percent of those. And they did it in typical Chinese fashion. They ordered that the power grid must take alternative power before it can take anything else. Second, it must do it under long-term contracts, and third, it must do it at a big premium price. So they managed to create a huge domestic market, and now they're beaming in on the export. That's how you have an industrial policy. [Emph. added]

So Chinese consumers pay artificially inflated prices for wind power in order subsidize exports of clean-energy equipment to places like the U.S. I’m all for it. But I don’t see why the Chinese government should think that’s such a brilliant idea. Or Wilbur Ross, either, for that matter. . . . .

Fortune ’s Katie Benner makes the least convincing case yet for Elizabeth Warren to head the CFPB:   

Someone like Warren is a shock to that system. She unabashedly sides with consumers. She hates fine print and contracts with "gotcha" clauses. She wants to eliminate predatory loans. And she thinks that it's okay for bank profits to be crimped in service of a level playing field between borrowers and their lenders. In other words, she is Jamie Dimon's nightmare. 

Katie! The system doesn’t need any more shocks, thanks very much!. . . .Nor does Jamie need any more nightmares. Benner actually makes a great case why Warren might be the worst person for the job. At this point in the cycle, regulators’ primary concern should be on strengthening the financial health of the institutions they oversee. (That’s why all the forced capital raises.) The longer it takes banks to restore their balance sheets, the longer it will take them to lend freely again. Moves by regulators to “crimp profits” in the meantime are bad for the system and bad for the economy.

Then, later: “It’s doubtful that Warren, or the bureau, will bring about the end of lending, as some fear.”  Reassuring! Actually, nobody fears that Warren’s CFPB might shut down consumer lending. If it did, the economy would implode. But even short of inducing a global depression, Warren as head of the CFPB could wreak some serious economic damage. The playing-field-leveling that has Benner so excited, for example, will have the effect, at the margin, of curtailing the creation of consumer credit. Perhaps by a lot. Benner seems oblivious to the role credit creation plays in the overall economic scheme of things. But it's of course vital. So a regulator with as much power as the CFPB should be disinterested in balancing the needs of consumers against those of the lending industry. Benner is highly persuasive that Liz Warren wouldn’t do that. . . .

Will the rating agencies ever miss an opportunity to demonstrate how clueless they are? Doubtful! From Reuters, yesterday:

Moody's confirms Synovus (subordinate B3); outlook stable

I won’t recap the entire Synovus saga, but there can be no mystery why Moody’s confirmed Synovus’s outlook: back in April the company completed a $1.1 billion equity offering that had the effect of boosting its capital into the stratosphere. After the deal, for example, Synovus’s Tier 1 common ratio rose to 10% from 6%. Tier 1 capital rose to 13.7%. Total capital, 17.2%. There was wide agreement at the time that the deal (which I actually thought was a bit excessive) would ensure that Synovus would have enough capital to make it through the entire cycle.

The effect of the offering was immediate, dramatic, and not in dispute--yet Moody’s takes three months to get around confirming company’s outlook?  What could they have possibly been waiting for? The subprime meltdown showed that the agencies have a tendency to be asleep at the switch. It looks like they’re still snoozing. . . .

ShoreBank, the bank that will not die:

ShoreBank’s capital deficiency worsened in the second quarter, according to newly submitted financial results to regulators, and the Chicago-based lender now needs to raise at least $190 million just to meet targets set out in March by state and U.S. banking regulators.

The South Side bank has arranged a capital infusion of about $150 million from Wall Street investment firms, big banks, insurance companies and philanthropic groups. It’s hoping that private investment will then make it eligible for about $75 million in bailout funds from the U.S. Treasury Department.

The bad news: Tier 1 capital has fallen to $4.1 million (on $2.2 billion in assets), down from $43 million at the start of the year. Roughly one-quarter of the bank’s loan book is seriously delinquent. The good news: this is President Obama’s favorite bank. For ShoreBank, the good news is much better than the bad news is bad, if you catch my drift. . . .

Most noteworthy paragraph in Hank Paulson's op-ed , in today’s Washington Post, on what to do about the GSEs:

The GSEs are providing an enormous stimulus to the economy. Placing Fannie and Freddie in conservatorship was, in my view, the most effective of the stimulus efforts undertaken in the past two years. This stimulus was aimed squarely at the driver of our financial and economic crisis: the decline of home prices. Without public support, ensuring that mortgage financing was available during the worst moments of the financial crisis and the ensuing 22 months, the housing market would have ground to a halt, home prices would have spiraled downward, foreclosures would have skyrocketed, and financial institution balance sheets would have suffered greater losses, leading to a prolonged downturn and the loss of millions of additional jobs.

I don’t think I’ve ever seen anyone actually make this point, even though it is blatantly, absolutely true. If Fannie and Freddie hadn’t been around at the depths of the crisis to buy mortgages, everything would have ground to a halt. They’re still playing a vital role in keeping the economy propped up. That’s something the ban-the-GSEs-and-let-the-market-work-its-magic crowd fails to address whenever they get their lather up on the issue. Paulson’s answer is to create utility-like entities, whose rates of return would be fixed so managements don’t go crazy, to buy and insure conforming residential mortgages. I suppose. Free-market types will resist the idea. Then again, if the government is so invested in promoting and subsidizing home ownership (and you don’t even want to try and count the ways how), it can logically play a role in preventing the system from seizing up. . .  . No, I'm not crazy about the idea, either. . . .

In Phoenix, Freddie Mac moves to clear some inventory:

FREDDIE MAC TO AUCTION OFF FORECLOSED PHOENIX HOUSES

Prospective buyers trying to purchase Phoenix foreclosed homes to live in will have first dibs on 135 houses that mortgage giant Freddie Mac is auctioning off next month. 

Buyers, particularly first-timers using government incentives and mortgage financing, have had a tough time competing with investors for inexpensive foreclosed homes in metropolitan Phoenix over the past 18 months. This auction, Aug. 7 at the Phoenix Convention Center, is geared toward buyers who plan to live in the houses.

HomeSteps, the real-estate-sales unit of Freddie Mac, is offering to pay qualifying buyers up to 3 percent of their closing costs. Almost a third of the foreclosed homes going on the auction block are set aside for first-time buyers using federal funds from the Neighborhood Stabilization Program.  [Emph. added]

So Freddie is giving would-be-occupants preference over investors even though, as seems to be the case, investors are willing to pay more for the properties.

By what logic does this make sense? In Phoenix and many other depressed markets, home prices have fallen by so much that investors can purchase properties and turn around and rent them out at a positive carry. That’s why they’re willing to outbid first-time buyers! Given the financial state that Freddie lately finds itself in, I’d think it would have an interest in getting the top possible dollar as it liquidates its OREO, rather than accept (and help subsidize!) a lower offer from a buyer who’s more likely to default in any event. Crazy. I thought we’d all decided that bending over backwards to let people buy houses doesn’t always produce good outcomes.  . . . Despite all that’s happened, the cult of homeownership seems as strong as ever. . . .  

Corporate executives don’t trust President Obama. Fareed Zakaria counts the ways why:  

Most of the business leaders I spoke to had voted for Barack Obama. They still admire him. Those who had met him thought he was unusually smart. But all think he is, at his core, anti-business. When I asked for specifics, they pointed to the fact that Obama has no business executives in his Cabinet, that he rarely consults with CEOs (except for photo ops), that he has almost no private-sector experience, that he's made clear he thinks government and nonprofit work are superior to the private sector. It all added up to a profound sense of distrust.

Okay, okay, we get it!  . . . . While we're on the topic, the White House’s abuse of Chrysler’s secured-debt holders was no confidence-builder, either. Neither was this. And don't forget that “fat cat bankers” crack. That stung!  . . . .Come to think of it, is there a profit-making activity the President actually approves of? There must be. . . . . Wait, who makes TelePrompters? . . .

Who knew? It turns out Citi timed its Phibro sale pretty darn well:

[D]id Citi sell Phibro, its famed, profit-making commodity’s trading unit, in the nick of time?

Consider today’s release of second- quarter results from Phibro’s new owner Occidental Petroleum. Phibro “appears to be the bulk” of Occidental’s failure to meet Wall Street expectations, Chief Financial Officer Steve Chazen said in a conference call with investors and analysts this morning.  

“You can’t say trading results were anything but lousy,” Chazen said.

Citigroup sold Phibro late last year. While the purchase price wasn’t disclosed, a Citigroup executive told the Journal the bank expected to receive $450 million from Occidental.

In Gallup’s survey of Americans’ confidence in the country’s major institutions, out last week, which institution fell by the most? The presidency. In 2009, 51% of Americans said they had a great deal or quite a lot of confidence in it. Now just 36% do—down 15 points.  That is by far the biggest decline of any of the 16 institutions included in the survey. (Next biggest decline: minus-6, for both Congress and the military.) And which institutions rose by the most? The medical system (up 4 points, to 40%) and big business (up 3 points, to 19%).

Yes, you are reading that right. After a year of listening to President Obama trash the country’s medical system and insist it be replaced, Americans like the system more now than they did then. And after watching the White House systematically turn the energy industry, the health care industry, and the financial services industry into scapegoats over the past year, people think better of big business now than they did before. It’s only Obama who’s doing the sinking. The guy might need to readjust the settings on his teleprompter. . . .

One more reason to expect that, should she be appointed head of the CFPB, Elizabeth Warren would be less a disinterested regulator than she would be a nakedly partisan hack: she obfuscates the data in studies she conducts, in order to arrive at a pre-determined, politically correct conclusion. That’s what happened last year, at any rate, when, in the midst of the healthcare debate, Warren and colleagues miraculously produced a paper that found that soaring medical expenses accounted for fully 70% of bankruptcy filings, up from 50% in 2001. The Atlantic’s Megan McArdle ain’t buying it:

What Warren et. al. neglect to mention is that bankruptcies fell between 2001 and 2007 [because of the more creditor-friendly bankruptcy law passed in 2005].  In fact, they were cut in half.  Going by the numbers Warren et. al. provide, medical bankruptcies actually fell by almost 220,000 between 2001 and 2007, a fact that they not only fail to mention, but deliberately obscure.

Are Warren, et. al. unaware that bankruptcies fell by half?  No bankruptcy analyst could possibly be unaware of this fact; it has been the most talked-about phenomenon in the bankruptcy area since the 2005 law was passed.  

Oh, that classy White House. An unnamed Wall Street executive tells CNBC how the Obama administration must have decided to dole out the invites to today’s bill signing:

"Basically, the White House made the decision to invite only the banks that were most sycophantic in the run-up to the passage of Dodd-Frank.”

Some things you can just depend on. . . The logic of the decision eludes me, however. The White House comes off as petty, Jamie and Blankfein come off as stalwart defenders of shareholders and employees, and Vik Pandit comes off as a putz. I doubt this is the effect the Obama people were looking to create. . . .

Edward Glaeser makes the perfectly obvious, and often forgotten point that regulators are mere mortals, too, and so can be just as non-rational as the consumers they are supposed to protect.  

A consumer protection agency, however, is based on the view that a regulator can help offset the errors made by private individuals. In some cases, regulatory agencies really do make things better . . . . But history has seen plenty of bad regulation, whether in railroads or financial markets, that privileges insiders and restricts innovation. The best way to avoid these missteps is for the Bureau of Consumer Financial Protection to have modest, well-defined goals, like providing clear information to borrowers. Clear, limited objectives will reduce administrative overreach and respect the fact that politicians and regulators are people, too, and make the same kinds of mistakes as lenders and home buyers. [Emph. added]

I somehow doubt that “clear, limited objectives” are what the Obama people have in mind for the CFPA. This is not going to end well. . . .