One of the side effects of the growing controversy over the Securities and Exchange Commission's new exemptions from Freedom of Information Act requests is that the SEC could be forced to turn over more documents about how it views its own responsibilities under FOIA.  

Rep. Darrell Issa, (R-Calif.), has given the SEC until Aug. 19 to turn over all communications dating back from 2005 on how it treats FOIA requests, and also asks that the agency spells out the impact of how it wants existing laws changed under the new Dodd-Frank financial reform bill.

The SEC has told FOX Business that the new section was needed because the Dodd-Frank bill for the first time requires the agency to examine hedge funds, private equity funds, and venture capital funds. It says those funds for years have fought SEC attempts to examine them, citing concerns the agency would disclose trade secrets and proprietary information to competitors, including customer account information, trading strategies and algorithms.

But a growing chorus of Congressmen and government watchdog groups have said the new section is an over reach, noting that existing FOIA laws already protected these companies, which the SEC disputes.

The SECrecy controversy, first brought to light by FOX Business, has drawn support from every corner of the political spectrum. In addition to conservative groups, a coalition seeking to overturn the provision now includes groups like Feminists for Free Expression and the ACLU. They join the American Library Association, the Government Accountability Project, OMB Watch, OpenTheGovernment.org and Public Citizen.

FOX Business was the first news organization to call attention to the new section in the Dodd-Frank bill.

In a July 30 letter to Rep. Barney Frank (D-Mass) and Sen. Chris Dodd (D-Conn.), SEC chairman Mary Schapiro wrote that the language in the new clause is not new, noting "as far back as 2006, then SEC chairman Chris Cox sought language similar" to the new section in order to examine hedge funds and the like, and that the new section, 9291, is necessary to encourage regulated firms to comply with SEC requests for "sensitive and proprietary information."

The chairman wrote: "The Dodd-Frank Act mandates a number of new responsibilities for the SEC to protect investors, including new authority over hedge funds, private equity funds and venture capital funds. Fulfilling these responsibilities will require the SEC to expand and improve our examination and surveillance capabilities in order to provide the type of risk-focused regulatory oversight investors deserve."

Chairman Schapiro added: "It is important that registered entities be able to provide us with access to confidential information without concern that the information will later be made public."

The chairman also noted in her letter that the new section addresses a "longstanding impediment" to the SEC's ability to examine companies because companies feared disclosure of sensitive and proprietary trade secrets such as "customer information, trading algorithms, internal audit reports, trading strategy information, portfolio manager trading records and exchanges' electronic trading and surveillance specifications and parameters."

Such information is "critical" in order for the SEC to "detect possible misconduct," Schapiro wrote, citing in particular that the agency couldn't get at personal trading records to detect insider trading, or trading algorithms needed to detected manipulations in automated high frequency and flash trading.

SEC subpoenas also aren't covered by FOIA, Schapiro wrote, and in some cases investment firms "whose records could be disclosed" under an SEC subpoena "have not even been parties to the proceeding," which "may cause significant harm" to the business.

"Prior to the Dodd-Frank act, regulated entities not infrequently refused to provide Commission examiners with sensitive information due to their fears that it ultimately would be disclosed publicly," Schapiro wrote. "Existing FOIA exemptions were insufficient to allay concerns due in part to limitations in FOIA (including that certain existing exemptions may not apply to all registrants)."

The SEC has told FBN that existing FOIA was insufficient to protect those firms from having their proprietary trade secrets disclosed by the agency because a financial institution as defined under FOIA exemption (b)(8)

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"Tax increases are highly contractionary…The large effect stems in considerable part from a powerful negative effect of tax increases on investment...[the finding is] strongly significant..highly robust."

            -Christina Romer, White House chief economic adviser, David H. Romer, American Economic Review, June 2010      

Expiration of the Bush tax cuts will equate to $184 billion in reduced spending. If all of the Bush tax cuts expire, taxpayers would have to pay $230 billion, economic growth could be slower by five percentage points in the first half of next year, and consumers could cut as much as $184 billion out of spending, if they react quickly to the Bush tax cuts expiring.

          —JPMorgan Chase      

"Why would any CEO invest one penny in the US? There is not one reason based on the new rules of the game."--David Farr, CEO, Emerson Electric, quarterly conference call, May 2009

There’s a fiscal fundamentalism in DC when it comes to the economic impact of the regulatory vaporware coming out of DC, including the effect of  

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Way too much attention paid to the Hindenburg Omen, that this dreaded technical pattern flashed a negative signal recently in the markets, indicating a coming crash.

Supposedly two Omen signals flashed fire engine red recently.

But market analysts say that didn’t happen.

Hindenburg Omen Explained

A 50-year old financial newsletter writer, James Miekka built the Hindenburg Omen in 1995 using a calculus essentially based on Norman G. Fosback's High Low Logic Index.

It essentially looks at stocks trading at 52-week highs and lows, and more moving parts that must miraculously line up in syzygy for the Hindenburg Omen to be set alight and then blow to smithereens over the markets.

Logic being that in a healthy market, stocks either set new yearly highs or annual lows, just not both at the same time. An unhealthy market with both new highs and lows portend a “to the lifeboats, stop the market I want to get off” moment.

As if we haven’t had enough of those already.

The Omen’s Criteria

Here are the five criteria for the Omen, named after the crash of the German zeppelin in May 1937, courtesy of my Wall Street traders:

1. The daily number of new 52 week highs in stock trading and the daily number of new 52 week lows on the Big Board are both, emphasis on both, greater than or equal to 2.8% of the sum of the NYSE stocks that climb higher or drop in trading on a given day (84 stocks, NOTE THAT, STOCKS).

2. That the NYSE index is greater in value that it was in trading 50 trading days prior. Initially a rising 10 week moving average was used, but it was ditched for 50 to be more current.

3. That the McClellan Oscillator is negative on that same day. The Oscillator is a market breadth signal used to ascertain the growth rate of money coming in or exiting the market—it indicates an overbought or oversold condition.

4. The new 52 week highs can’t be more than double the new 52 week lows (however, it is ok for the new lows to be more than twice the new Highs). This condition is absolutely mandatory.

The Omen Was Not Triggered

Never mind that the Omen is not right 10% of the time, only a quarter of the time.

The Omen wasn’t triggered, say my Wall Street quant sources.

When you look at the trades that supposedly hit the news highs and lows, they were not stocks.

Instead, “the vast majority of ‘stocks’ making new highs were interest sensitive closed-end funds, preferred stocks, or some other kind of fixed income product, which by my pencil are not stocks,” says Raymond James managing director Jeffrey Saut. “Therefore I’ll say the same thing I said two weeks ago, I don’t think a Hindenburg Omen has been registered; and even if it has, its track record is spotty.”

Bullish Signals?

Saut says instead that a bullish signal took place. If you really want to get technical, read this.

“What largely went unnoticed, however, was the Demark buy signal (see below) that was recorded by the SPX late last week. In addition to the Demark signal, there are some other potentially encouraging developments,” Saut says. “The McClellan Oscillator is approaching the oversold level of late June, ditto the Capitulation Index, the SPX closed at the low-end of the Bollinger Bands that have contained decline for over a year, the NFIB Hiring Plans Index just went into positive territory, and investors’ sentiment is bloody awful (read that as bullish),” Saut adds. “In fact, I have not seen retail investors so unwilling to talk about stocks since the fourth quarter of 1974!”

Saut concludes: “While in my view we have not had two Hindenburg Omen “sell signals,” we have indeed experienced two 90% downside days, without a single 90% upside day, over the past two weeks.”

He says: “I think it is a mistake to get too bearish here for the aforementioned reasons. I also think it is a mistake to get too bullish. Indeed, I believe the equity markets will remain mired in the envisioned wide-swinging trading range I spoke of following the first Dow Theory ‘sell signal’ of September 1999. In such an environment, stock selection, combined with the ability to sell mistakes quickly, should be the key to portfolio outperformance. Moreover, I agree with the insightful folks at GaveKal who suggest there are reasonable investment alternatives to the sidelines.” (EMac: Emphasis

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The New York Federal Reserve recently put out a report on consumer credit that shows how underwater taxpayers still are even three years into the bursting of the credit bubble.

And in light of the negative news on existing home sales, the report’s new findings on home equity lines of credit should be of deep concern to policymakers in Washington, DC.

With HELOC lines of credit still stubbornly high, how can underwater homeowners ever sell?

The report shows that total consumer debt was $11.7 trillion as of June 30, the latest data available. That’s 6.5% lower from the third quarter of 2008, when the bubble started to blow up.

Two graphs on pages four and eight in this report may really pop out at you. “That’s because they highlight how people used their home equity lines as credit cards,” says Fox News analyst James Farrell. They “cannot find buyers to liquidate their primary asset to pay off (these home equity line balances), as well as the existing mortgage except at prices which represent a fraction of what they paid at the top of the market.”

Farrell adds: “Investors recognize this,” which is why they “continue to represent a significant share of existing home purchases.”

The New York Fed’s report shows home equity lines of credit (HELOC) fell just 4.4% to $700 billion in the first quarter of 2010 from their January 2009 peak. Meanwhile, consumers had $800 billion in credit card balances outstanding, down just 6% from their peak in 2008.

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