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Bud's Poem Page Sunni/Shiite/Iraq/Iran Katie's Coast2Coast Blog |
April 30, 2010
April 29, 2010
April 28, 2010
April 27, 2010
April 26, 2010
April 23, 2010
April 22, 2010
April 21, 2010
Thoughts European shares turned lower, with banks declining as investors worried
that firms could be subject to a new round of taxes. Most Asian stock markets
closed higher as solid earnings from Apple sparked a rally in technology
stocks. (From the wires) AT&T
said its first-quarter profit fell 20% because of a large health-related
expense, but revenue rose and the company added a net 1.9 million wireless
subscribers. The company said net income attributable to common shareholders
fell to $2.5 billion or 42 cents a share, from $3.1 billion, or 53 cents a
share, a year earlier. Revenue rose 0.3% to $30.65 billion. Excluding the
onetime health-care expense, AT&T said it would have earned 59 cents a
share. The carrier was projected to earn 54 cents a share on $30.76 billion in
sales. Chrysler Group LLC lost nearly $4 billion since exiting
bankruptcy last year, but the company reported a first-quarter operating profit
this year and increased its cash reserves, bolstering CEO Sergio Marchionne's
claim that the auto maker will break even by the end of the year. The company
credited cost cutting and the introduction of the new Ram Heavy Duty pickup
truck for the recent positive results. Apple reported a second-quarter profit of $3.07
billion, up from $1.62 billion a year earlier. Revenue jumped 49% to $13.5
billion, with 42% of the sales in the U.S. Yahoo,
meanwhile, reported a first-quarter profit of $310.2 million, more than
doubling from $117.6 million a year earlier. Revenue increased 1.1% to $1.6
billion. Trades liked Apple’s news but Yahoo not so much.
Investors
Intelligence had 53% bulls and 17% bears in the latest week. As a contrary
indicator the numbers don’t get much more bearish. (Reuters) - Huntington
Bancshares posted better-than-expected results on Wednesday, as losses on
loans eased in the first quarter. The Columbus, Ohio, company reported a net
profit of $39.7 million, or 1 cent a share, helped by a tax benefit, compared
with a loss of $2.4 billion, or $6.79 a share, a year earlier. Excluding the
gain, the bank reported a loss of 4 cents per share, compared with analysts'
average expectations of a loss of 15 cents a share, according to Thomson
Reuters I/B/E/S. First-quarter net charge-offs were
$238.5 million, down almost half from $444.7 million in the same quarter a year
before. "Earnings are in the black; that's a function of credit losses
being significantly reduced in the quarter," said Chief Executive Stephen
Steinour. In the spirit of sell the news we took our one week 15% profit in
Huntington.
http://www.aos.wisc.edu/
This
black and white photo from a rooftop webcam shows a fireball as it passed over
Madison, Wis., April 14. The meteor in Wisconsin, described as a fireball in
the sky, appeared at about 10 p.m. local time. University of Wisconsin-Madison
Department of Atmospheric and Oceanic Sciences/AP This year, Lyrid meteor activity began picking up on April 16, and the
shower will run until April 25. The Earth Day peak will actually come in the
early morning hours of April 22, after the first quarter moon has sunk below
the horizon, leaving dark skies. "The best time to look will be between
the time of moonset [between 1 and 2 a.m., local time] and dawn, and the best
way to observe the show is to recline comfortably, facing anywhere from north
to east and gazing nearly overhead,"[Astronomer Anthony] Cook said. Credit Default Swaps originally were created to allow investors
who owned bonds in a company to buy insurance for a very reasonable price
against those companies defaulting on their interest and principal payments.
Given the nature of markets traders who didn’t own bonds began to buy CDS to
bet that the underlying company or mortgage or group of mortgages (CDOs) would
default. The demand for those credit default swaps increased the price of the
CDS. And that increase encouraged trend following traders to buy the CDS
because the traders thought that maybe someone knew something. And so what was originally a sensible insurance product was turned into
a means for hedge funds and banks and brokers to speculate and in the process of
speculating make what may have been a manageable situation too incendiary for
reason and teem to prevail. That occurred with Lehman and Bear Stearns in 1998.
And today Credit Default Swaps being purchased by hedge funds that own no
underlying bonds but like sharks smell blood in the water have placed several
European countries in financial crisis. Credit-default swaps on Greece surged 31 basis points to a record 495.
Contracts on Portugal jumped 27 basis points to 228 and Spain climbed 16 to 161
basis points. Greek 10-year government bonds dropped for a seventh day, pushing
the yield above 8 percent. Greece began talks today on activating a 45
billion-euro ($61 billion) emergency aid package as the International Monetary
Fund called the country’s fiscal crisis a “wake-up call” on sovereign-debt
risks. The government needs to raise about 10 billion euros before the end of
May, and its soaring financing costs are lending urgency to the talks. “There’s
still concern about a domino effect from the Greece situation,” said Stanley
Nabi, New York-based vice chairman of Silvercrest Asset Management Group, which
manages $8.5 billion. “Are Portugal, Italy or Spain the next ones? In the U.S.,
you’re seeing very decent earnings reports. But Europe brings concern about the
sustainability of the recovery.” We thought this headline on Bloomberg was an Onion joke when we first read it: AIG Said to Insure Goldman's Board against
Investor Suits American International Group Inc., the financial firm rescued by the U.S.,
is the lead insurer of Goldman Sachs Group Inc.’s board against shareholder
lawsuits, said a person with knowledge of the policy. AIG is among firms that
sold so-called Side A directors and officers’ coverage
to the New York-based bank, said the person, who declined to be identified
because details of the policy are private. Goldman Sachs was sued last week by
the Securities and Exchange Commission, which claimed it misled investors in
2007. From our technician we learn that the founding of Rome is dated April
21. The year is not certain: (Wikipedia) During the Roman republic, several
dates were given for the founding of the city, all in the interval between 758
BC and 728 BC. Finally, under the Roman Empire
the date suggested by Marcus Terentius Varro (753 BC) was agreed
upon, but in the Fasti
Capitolini the year given was 752. While the years varied, all versions agreed that the city was founded
on April 21, day of the festival sacred to Pales, goddess of shepherds; in her honour, Rome celebrated the Par ilia
(or Palilia). (The Roman Ab Urbe Condita (or a.u.c.)
calendar, however, begins with Varro's dating of 753
BC.) Our Technician also says that the high in the vertical market rebound
after the Great Crash in 1929 was April 20 1930 and after the collapse in 1974
the high of the vertical rebound was April 20 1976. Of course our brother was born on April 22, 1953 so not all bad things occur
around these dates. Interesting post on the Goldman/SEC/Paulson imbroglio: http://www.interfluidity.com/v2/784.html
Lance
Baxter, better known as D.C. Douglas but perhaps best known as the voice of
Geico commercials ("15 minutes could save you 15 percent or more on
your car insurance") has been fired by the insurance company after leaving
a voicemail for Tea Party group FreedomWorks. Douglas asked FreedomWorks in his voicemail
what "the percentage of people that are mentally retarded who are working
for FreedomWorks and who are following it," or as he has since put it, he "inquired as to their intelligence
level." In the voicemail, Douglas also questions how FreedomWorks will
"spin it when one of your members does actually kill somebody, wondering
if you've got a PR spinning routine planned for that or are you just gonna take
it when it happens." In the aftermath, FreedomWorks president Matt Kibbe published a post on the conservative website
biggovernment.com, providing readers with a recording of the voicemail -- which
included Douglas's personal phone number -- and encouraging people to call both
Douglas and Geico to "[l]et them know that you, in fact, are not a
mentally retarded killer." According to a press release from Wednesday, Geico held auditions to replace
Douglas the next day. Douglas has since acknowledged such an impulsive move was "STUPID!,"
but was impassioned by the "slurs the Tea Party crowd angrily yelled at
Barney Frank, et al," during the climax of health care reform. He also holds no grudge against his former employer, saying in the
press release: "I don't blame GEICO for protecting themselves. They have a
business to run and can't waste time getting caught up
in FreedomWorks' circus. And they've been very good to me in the past." And then of course there is Nike and Tiger Woods to suggest what type
of private speech is allowed by corporations.
Gretchen
Morgenson at the NYT picks up on our constant theme of how artificially low
interest rates are allowing the Fed to save the banks from their foolery by
punishing savers: Morgenson: This Bailout Is a Bargain? Think Again It’s way too early to tally the costs of the government’s various
efforts to help our nation’s financial institutions survive the credit debacle.
But that hasn’t stopped anonymous Treasury officials from claiming in recent
days that their Armageddon-avoidance will wind up costing far less than many
feared, Gretchen Morgenson writes in her latest column in The New York Times. One Treasury estimate, leaked to The Wall Street Journal last week, put
a price tag of $89 billion on the financial bailout. That’s far below the $250
billion the Congressional Budget Office estimated last year or other analyses
that put the all-in number at $1 trillion or more. It is understandable, of course, that Treasury might want to transmit
good news about bailouts the same week Americans were
rushing to meet the I.R.S.’s tax deadline. And given
that Treasury is run by Timothy F. Geithner, the man who doled out bailout
billions as president of the Federal Reserve Bank of New York, his current
minions certainly have an interest in peddling the view that the price of these
rescues has become less onerous. But before we break out the Champagne, let’s look at the costs this
estimate included — as well as those it left out. What the $89 billion included were costs associated with stabilizing
Fannie Mae and Freddie Mac, the mortgage finance giants; loan guarantees by the
Federal Housing Administration; and liquidity programs offered by the Federal
Reserve, such as those authorizing the purchase of mortgage-backed securities
from financial institutions. It also included the Troubled Asset Relief Program
— which, nameless Treasury officials contended, may someday generate a profit. But if the Treasury wants to provide a full assessment of the costs of
this financial debacle, it will have to add some more beads to its abacus. “If you are going to do a ledger, you have to do a full and complete
ledger,” said Christopher Whalen, editor of the Institutional Risk Analyst. “To
talk about making money on short-term transactions with the TARP while you have
this huge cost to the nation is incongruous.” A major factor missing from Treasury’s math is the vast transfer of
wealth to banks from investors resulting from the Fed’s near-zero interest-rate
policy. This number is not easy to calculate, but it is enormous. The Fed’s
rock-bottom interest-rate policy bestows huge benefits on banks because it
allows them to earn fat profits on the spread between what they pay for their
deposits and what they reap on their loans. These margins are especially rich
on credit cards, given their current average rate of 14 percent and up. The losers in this equation are savers and investors, especially people
on fixed incomes. “All interest-sensitive investors have been transferring what
they should be receiving to Uncle Sam and the banking industry,” Mr. Whalen
said. “And you are talking about a lot of money.” Then there are the losses suffered by the Federal Deposit Insurance
Corporation when it has to take over faltering institutions. The estimated cost
to its insurance fund is $6.65 billion for the 43 banks that have failed this
year. The fund is financed by bank fees. Treasury’s recent figures also don’t reflect hits that may result from
loss-sharing arrangements the F.D.I.C. set up with healthy banks to persuade
them to take on the assets of failing ones. How much the government might have
to swallow as part of that program is unknowable now, but Mr. Whalen said he
expects such losses to hit $400 billion when all is said and done. There are also costly consequences of our government’s relatively
easygoing approach to bank assistance, a practice Mr. Whalen calls “extend and
pretend.” “The refusal of the Washington political class to address the issue of
bank insolvency quickly via restructuring and recapitalization has extended the
economic recovery process by years,” he said. “Lending will continue to shrink
and real economic activity is suffering. The cost of ‘extend and pretend’ goes
into the trillions of dollars of lost economic activity.” By allowing the banks to keep bad loans valued on their books at
unrealistic levels, the government has prolonged the agony of this downturn.
Mr. Whalen suggested that the government should have made the banks write down
loans to realistic levels a long time ago, while letting them keep the TARP
money as a financial cushion. Instead, the banks were encouraged to pay back TARP and put off the day
of reckoning when it came to assessing the real-world value of the toxic assets
lurking on their books. And so the shrinkage of the banking system continues. Of course, the $89 billion estimate also excludes big costs associated
with the implied government guarantees of large, interconnected and clubby
financial institutions. Dean Baker, co-director of the Center for Economic and
Policy Research in Washington, estimated last year that 18 large banks that the
market viewed as too big to fail received advantages — such as artificially
cheap funding costs — worth $34 billion a year. Such financial benefits represent yet another cost of the banking
crisis and the continuing actions the government is taking to protect our
system from the mistakes of megabanks. Even if Treasury doesn’t want to
acknowledge them, they’re real. Andrew G. Haldane, executive director for financial stability at the
Bank of England, examined some of these costs in an excellent speech last month
before the Institute of Regulation and Risk in Hong Kong. Calling such costs
“banking pollution” and the “noxious byproduct” of systemic risk, Mr. Haldane
took a stab at measuring some of them. In past financial crises, Mr. Haldane noted, costs appeared to be
“large and long-lived, often in excess of 10 percent of pre-crisis G.D.P.” But
he said that current estimates in the United States that peg bailout losses at
around $100 billion represent less than 1 percent of domestic output. (This is
the relatively rosy view Treasury is promoting.) He said low-ball accountings “are almost certainly an underestimate of
the damage to the wider economy” as a result of the crisis. World output last
year was thought to have been 6.5 percent lower than it might have been had the
crisis not occurred. Globally, this translates to $4 trillion in lost output,
he said. He also says such losses can be “permanent” or “persistent.” “Measures of the costs of crisis, or the implicit subsidy from the
state,” Mr. Haldane said, “suggest banking pollution is a real and large social
problem.” Sadly, it is one that our leaders here at home seem more willing to
underplay than control. Buy high, sell low. But then
most of the Goldman Sachs’ part of the deal is OPM, other people’s money. (Bloomberg) -- Mexican billionaire Carlos Slim agreed to pay $140 million for 417 Fifth Ave., a midtown Manhattan
office tower, from a partnership that includes Goldman Sachs Group Inc., a
person familiar with the transaction said. Slim, ranked by Forbes magazine as the world’s richest person, is
paying $343 a square foot for the building, said the person, who asked not to
be named because the deal is private. The 11-story tower is located at the
corner of East 38th Street. The seller is a joint venture of Moinian Group Inc., an investment
company headed by developer Joseph Moinian, and Goldman Sachs’s Whitehall
Street Real Estate Funds. The venture
paid $250 million for the building in 2007, city records show. REYKJAVIK, Iceland (http://www.huffingtonpost.com/2010/04/21/katla-volcano-threat-of-n_n_545784.html) — For all the worldwide chaos that Iceland's volcano has already created, it may just be the opening act. Scientists fear tremors at the Eyjafjallajokull
(ay-yah-FYAH-lah-yer-kuhl) volcano could trigger an even more dangerous
eruption at the nearby Katla volcano – creating a worst-case scenario for the
airline industry and travelers around the globe. A Katla eruption would be 10 times stronger and shoot higher and larger
plumes of ash into the air than its smaller neighbor, which has already brought
European air travel to a standstill for five days and promises severe travel
delays for days more. The two volcanos are side by side in southern
Iceland, about 12 miles (20 kilometers) apart and thought to be connected by a
network of magma channels. Katla, however, is buried under ice 550 yards (500 meters) thick – the
massive Myrdalsjokull glacier, one of Iceland's largest. That means it has more
than twice the amount of ice that the current eruption has burned through –
threatening a new and possibly longer aviation standstill across Europe. Katla showed no signs of activity Tuesday, according to scientists who
monitor it with seismic sensors, but they were still wary. Pall Einarsson, professor of geophysics at the Institute of Earth
Sciences at the University of Iceland, said one volcanic eruption sometimes
causes a nearby volcano to explode, and Katla and Eyjafjallajokull have been
active in tandem in the past. In fact, the last three times
that Eyjafjallajokull erupted, Katla did as well. Katla also typically awakens
every 80 years or so, and having last exploded in 1918 is now slightly overdue. European markets generally weakened, as worries about Greece's ability
to fund its debt prompted investors to move into safe-haven assets such as the
dollar and German bonds. Bank stocks fell on fears of a new tax. Oil was down
22 pennies at $83.63. Gold gained $10 to $1148.
April 20, 2010
Thoughts (Yahoo) Europe's bourses are up with strong gains at midday amid news that Greece successfully sold nearly 2 billion euros worth of three-month bills in an auction that garnered strong demand and an interest rate that was below some of the more pessimistic expectations. News of a stronger-than-expected German investor confidence reading for April has also helped sentiment. Germany's DAX is up 1.3% at the moment. Of its 30 members, only Henkel AG I is in the red, while Daimler is up nearly 8% in its best single-session percentage advance in months following strong earnings for its latest quarter. In France, the CAC is up 1.2%. Its gains have also been broad based. Dexia SA and Lagardere are the only two names in the 40-member index that have failed to find higher ground; they are down fractionally. With help from an upgrade by analysts at Citigroup, Total currently sports one of the most impressive gains. In Britain, the FTSE is up 0.9%. Natural resource plays BP and Rio Tinto are leaders, but SABMiller is also strong after reports suggested that the company said its financial performance for the year remains in-line with expectations. As for data, the UK inflation rate for March climbed 3.4%, which was sharper than expected. In Asia, Japan's Nikkei slipped 0.1% as strength in DAI Nippon Print and Fast Retailing was undermined by Softbank, which was a primary source of weakness. Hong Kong's Hang Seng finished 1.0% higher as banking issues of HSBC (HBC), China Construction Bank, and Industrial & Commercial Bank showed leadership. Li & Fung was a bit of a drag, however. Meanwhile, mainland China's Shanghai Composite finished flat. Stocks jumped 0.5% yesterday after we left and so all is well in La La land again. The blip of Friday is ancient history and the sheep once again have confidence their shepherd Goldman as the major market measures resume their relentless climb to the sky. It’s good the know that the health insurance companies are continuing to do well as in: UnitedHealth Group said that its first-quarter net profit rose to $1.19 billion, or $1.03 a share, up from $984 million, or 81 cents a share, at the same point a year ago. Analysts had been expecting earnings per share of 68 cents And of course Goldman has few
financial problems as they set aside $5 billion for bonuses at the end of the
year: Goldman Sachs said its first-quarter net income rose to $3.3
billion, or $5.59 a share, from $1.66 billion, or $3.39 a share, in the
year-ago period. The investment bank's revenue rose to $12.78 billion from
$9.43 billion. Wall Street analysts expected earnings of $4.16 a share and
revenue of $11 billion
General Motors now plans to repay $4.7 billion in U.S. government loans ahead of the company's self-imposed June deadline. Drug companies marked up prices 9.1% last year, leading to the biggest increases for brand-name pharmaceuticals in at least a decade. IBM's profit jumped 13% as the tech giant posted
higher software, hardware and technology-services revenue, though it booked
fewer new consulting contracts than a year ago.
European markets gained, as
positive global earnings news from the likes of Goldman Sachs Group and Daimler
boosted investor confidence over the global economic recovery. Crude was up $2
at 482 and Gold gained $4 to $1140.
April 19, 2010
Thoughts Asian and European markets were
down overnight playing catch up to the U.S. markets drop on Friday. China
dropped 4.8% after fresh moves by Beijing to rein in property prices. The news
continues to be about Goldman Sachs with CNBC rolling out the apologists. Citi reported much better than earnings of 20 pennies versus no earnings expected and
revenues were 20% greater than expected. What that means we have no idea except
that a pop is the share price will allow Uncle Sam to make a bit more money
selling the shares of Citi that it owns.
We took a loss on
our AIG fling of Friday. It was a dumb purchase. We read Michael Lewis’ book The Big Short over the weekend. We would
have save ourselves the loss if we had read it before Friday last. We also sold NVDA for a loss and switched to the same number of Ford
Warrants. We think the Goldman news is a damper on the market that the
markets will hold through earnings season till late May after the retailers
finish reporting and we expect the Ford warrants maintaining better relative
value as Ford continues to outperform.
We need to head out early this morning and as we leave the markets are
meandering around the unchanged mark. We will have more tomorrow. April 16, 2010
Thoughts GE beat by marking up assets it marked down last year. BankAmerica beat doing the same and
also on trading revenues-say isn’t that how they lost all the money. By the by,
BAC is setting aside billions for employee bonuses. Google disappointed on revenues last night and is down 55% in the
early going. Asian markets were down 1% and more overnight and Europe is mildly
lower as are U.S. futures.
The headline news on CNBC was the above about BankAmerica and GE beating. Here is WSJ’s email news take on the same stories: BofA Profit Falls: Bank of America booked a surge in investment-banking revenue in the first quarter, but it wasn't enough to keep its earnings from declining, as other businesses continued to struggle. GE Profit Drops 31%: General Electric's earnings were dragged down by a loss from discontinued operations and slower sales at its big industrial divisions. CEO Immelt sees encouraging economic signs. Last year the GE and BAC were
making new lows. This year they are trading at two to three times last year
share prices. Psychology determines share prices.
New construction of U.S. houses expanded for the third straight month
in March, the Commerce Department estimated Friday. Starts rose 1.6% in March
to a seasonally adjusted 626,000 annualized units, strongest than the 610,000
pace expected by economists surveyed by MarketWatch. This is the highest level
of starts since November 2008.
Let’s be tough but not too tough, after all Timmy will be working for them in a few years: Geithner Won’t Call For Derivatives Ban (WSJ) http://dealbreaker.com/ Mr. Geithner, in a letter to
Senate Agriculture Committee Chairman Blanche Lincoln (D., Ark.), said new
financial rules must create restrictions on how over-the-counter derivatives
are traded “in order to curb abuses that were at the very center of the
financial crisis.” But he notably stopped short of endorsing a proposal from
Ms. Lincoln to force large banks to spin off derivatives trading businesses
entirely.
Banks should not be trading derivatives, nor should insurance
companies. Derivatives trading as currently practiced is basically Las Vegas
east. But with it only costing thousands in donations to politicians, and
millions in lobbying expenses, the banks stand to make billions-until they
don’t and ask for taxpayer bailout. Don’t cry for me Argentina: The Argentina debt crisis of the 1970s was the first time we learned that banks are not smarter than the average man and woman. In subsequent years we have leaned that we were insulting the average man and woman by that comparison. (Bloomberg) -- Argentina will later today unveil its plan to restructure $20 billion in defaulted debt held out of a 2005 settlement, a move that may allow the country to access international debt markets for the first time in almost a decade. Argentina’s borrowing costs fell to the lowest since 2008 after President Cristina Fernandez de Kirchner made the announcement in Buenos Aires. The extra yield investors demand to own Argentine bonds instead of U.S. Treasuries narrowed 20 basis points, or 0.20 percentage point, to 5.98 percent at 1:34 p.m. in New York, according to JPMorgan Chase & Co. That’s the smallest yield gap since July 2008. “It’s important to keep doing things well so that our companies, small and big, can access international loans,” said, Fernandez said in Buenos Aires. Fernandez said the terms of the swap will be announced at 5:30 p.m. New York time. Argentina’s offer will probably
be worth about 54.5 cents on the dollar if the country excludes past-due
payments on warrants linked to economic growth, according to Siobhan
Morden, a debt strategist with RBS Securities Inc. The country is
restructuring debt as the economy emerges from an economic slowdown. South
America’s second-largest economy grew an average of more than 8.5 percent a
year from 2003 to 2008, before slowing to 0.9 percent last year, according to
the national statistics institute.
Mother Nature is not happy: (Bloomberg) -- Europe’s air-travel chaos worsened as the ash cloud from an Icelandic volcano spread as far east as Moscow, cutting off parts of Britain, France and Germany and threatening weekend travel. As many as 15,000 flights may be lost in the region today, or about half the usual timetable, according to Brian Flynn, operations chief at Eurocontrol, which oversees the region’s flight paths. That’s up from 8,000 cancellations yesterday. Ash from the eruption of
Iceland’s 5,500-foot Eyjafjallajökull volcano drifted southeast overnight. While airports in
Scotland, Norway and Ireland opened, others are shutting as the cloud spreads
and as many as six million passengers could be affected if the closures extend
into a third day, according to the Centre for Asia Pacific Aviation.
SEC charged Goldman
Sachs with fraud on selling subprime mortgages is the headline and the markets
which had been rallying turned south. http://online.wsj.com/public/resources/documents/secgoldman2010-04-16.pdf We rented Huntington Bank after it dropped 10% as the bank stocks tanked on
the Goldman news. We also added a
small amount of AIG to large
accounts. We think they may have a cause of action against Goldman if Goldman did not use and independent party to structure
the CDOs they sold that AIG insured. The SEC complaint says that Goldman didn’t European stocks recovered from early losses, as investors reacted
positively to healthy U.S. earnings but concerns over Greece's economic outlook
continued to prompt cautious activity. Europe closed before the Goldman news
hit the wires. Oil dropped $2.50 to $83.07 and Gold was down $23 as traders
sold before asking any questions.
http://en.wikipedia.org/wiki/Pecora_Commission
April 15, 2010
Thoughts
Jobless claims
were higher than expected at 484,000 and that has given the market a muted tone
after yesterday’s big jump. Overseas markets were higher overnight and Gold and
Oil are unchanged. The euro is weaker.
Iceland is surely
having its problems what with all its banks going broke last year and now an
ash spewing volcano has affected air traffic in northern Europe.
(WSJ) European shares held broadly steady around 18-month highs as corporate updates on both sides of the Atlantic continued to buoy sentiment, but metal stocks declined. Asian markets ended mostly higher, as strong overnight gains on Wall Street and China's first-quarter economic growth boosted regional markets. Greek bonds again dropped sharply in value.
United Parcel Service
(UPS) late Wednesday said its first-quarter profit jumped by a third thanks
to increased global demand as it also raised its earnings outlook for the year.
(UPS said deliveries outside the U.S. 9%. Deliveries
in the U.S. rose 1%. Deliveries within foreign countries rose 24%. Good for
U}S not so positive for the U.S. economy.)
We are
renting Coldwater Creek again.
http://www.chicagotribune.com/ Picture of meteor over Madison Wisconsin from Chicago Tribune (University of Wisconsin-Madison, Department of Atmospheric and Oceanic Sciences photo)
We saw this burst of
light last night accompanied about two minutes later by an enormous boom. It
was a meteor. the S&P 500 hit 1212 today, which is
a favorite family number and 1212 closes a downside gap from September 2008. 1212 is .819% above the sign of the devil 666
low on the S&P 500 in March of 2009. We aren’t superstitious-except for NKU
Basketball- but.... and it is tax day. http://www.dailykos.com/: According to a new poll from CBS and the New York Times, 92% of tea partiers are scared that America is moving towards socialism -- but in a strange twist, most of them seem to like it. Despite the fear that socialism is coming to America, 62% of tea party supporters also support Social Security and Medicare. In fact, nearly half of them either benefit from Social Security or Medicare or have somebody in their immediate family who does. And about one-third are directly beneficiaries at least one of the programs, compared to about one-fifth of the population at large. • 18% of Americans say they are tea party
supporters. • 66% of tea party supporters say they usually
or always vote Republican. (Just 5% vote Democratic.) • 73% say they are conservative. • 41% believe Barack Obama was born in the
United States. • While 65% believe the Obama Administration
treats blacks and whites equally, 56% believe it favors poor people over the
middle-class and rich. • 89% are white and 52% believe too much
attention is paid to the problems facing African-Americans. • 59% have a favorable view of Glenn Beck
compared to 6% who view him unfavorably. (Among all Americans, the numbers are
18% and 17%.) • 63% say they get most of their political
news from Fox News Channel. • 66% have a favorable view of Sarah Palin,
compared to 12% who view her unfavorably. (Among all Americans, the numbers are
30% and 45%.) • 24% believe citizens can be justified in
taking violent action against the government. • 52% believe the federal income taxes they
pay are fair. •
84% of the tea partiers believe their views
reflect those of most Americans, but only 25% of all Americans agree (remember:
18% are tea partiers). (AND SOME POSITIVE POLL NEWS THAT CABLE STATIONS SEEM TO HAVE MISSED) Just ahead of Tax Day, a new New York Times/CBS News poll finds that most Americans regard the income taxes that they will have to pay this year as fair, regardless of political partisanship, ideology or income level. Sixty-two percent of all respondents in the poll said the income tax they have to pay is fair, while 30 percent called it unfair. That includes six in 10 Republicans and independents and just over two-thirds of Democrats – a display of cross-party agreement rarely seen on any topic. It also includes most liberals, moderates and conservatives. Majorities across all income groups, moreover, called their
income tax fair. Sixty-two percent of Americans in households earning $50,000
or less said so, as did the same percentage of people in households earning
more.
Ford Motor Co. says its sales in
Europe were up 16.1 percent on the year in March and its market share hit a
12-year high. Ford said Thursday that it sold 192,500 vehicles on the continent
last month -- a performance which it said made it No. 1 in Europe. It said its
market share was 10.4 percent, its best showing since August 1998. (Bloomberg) -- The worst global financial crisis in 70 years arrived in Saint-Etienne this month, as embedded financial obligations began to blow up. A bill came due for 1.18 million euros ($1.61 million) owed to Deutsche Bank AG under a contract that initially saved the French city money. The 800-year-old town refused to pay, dodging for now one of 10 derivatives so speculative no bank will buy them back, said Cedric Grail, the municipal finance director. They would cost about 100 million euros to cancel today, he said. “It’s a joke that we’re in markets like this,” said Grail, 38, from the 19th-century city hall fronted by an arched facade and the words Liberte, Egalite, Fraternite. “We’re playing the dollar against the Swiss franc until 2042.” Saint-Etienne is one
of thousands of public authorities across Europe that tried to shave borrowing
expenses by accepting derivatives deals whose risks they couldn’t measure.
They may be liable for billions of euros, according to the Bank of Italy and
consulting and law firms in France and Germany. As global economies climb out
of recession, the crisis is hitting Saint-Etienne in central France, Pforzheim in western Germany and Apulia, an Italian
regional government on the Adriatic. They may pay for their bets into the next
generation.
It was nobody’s fault—well at least not Stan O’Neal’s fault.
http://www.timesonline.co.uk/tol/news/world/article7098057.ece
After 135 years, last U.S. sardine cannery closing. Double layer King Oscar Sardines from Norway in olive oil are the best. Once considered an imported delicacy, sardines now have a humble reputation. They aren't one species of fish. Instead, sardines are any of dozens of small, oily, cold-water fish that are part of the herring family that are sold in tightly packed cans. The first U.S. sardine cannery opened in Maine in 1875, when
a New York businessman set up the Eagle Preserved Fish Co. in Eastport.
Both the Greek
market as well as major national indexes in Europe rose after the Greek finance
ministry announced it had initiated talks with the European Commission,
European Central Bank and International Monetary Fund on driving forward its
bailout mechanism. Oil was down 32 pennies at $85.25 and Gold was flat at
$1160. The euro ended at $1.3563 while the dollar equaled 93.04 yen
April 14, 2010
Thoughts Intel and JP Morgan both beat and stocks are higher on the news. On top of that news Retail sales were better than and both Europe and Asia were higher overnight. Investors/traders are betting that the markets won’t move lower. *****
(WSJ) U.S. retail sales surged 1.6% in March from a month earlier, giving a strong sign consumers are growing more confident the economy is improving. Robust car sales drove much of the increase in retail sales. Yet excluding the automotive sector, other retailers were strong as well, rising 0.6%.
The jump in retail sales came amid subdued inflation. Consumer prices rose 2.3%
compared with a year ago, while prices excluding volatile food and energy were
1.1% higher on the year, which was the smallest annual increase since January
2004.
Ooops:
A Morgan Stanley real estate fund with $8.8 billion may
lose nearly two thirds of that money, $5.4 billion, due to soured investments,
The Wall Street Journal reported, citing fund documents. The losses stem from
investments in properties like the European Central Bank's headquarters in
Frankfurt, a development project in Tokyo, and certain InterContinental hotels,
the Journal reported.
Interestingly, Morgan Stanley is trying to raise $10 billion for a new
real estate trust. (Adding to the difficulties, the economic downturn
and big real-estate losses have rattled some of Msref's core investors, leading
to a challenging fund-raising environment. Morgan Stanley has sought to raise a
new, $10 billion fund, Msref VII Global.) We wonder how the sales pitch goes?
Of course they probably will get the money on the basis of the thought that
they can’t be that dumb to lose money twice.
China suffered a 6.9 magnitude earthquake yesterday. Earthquakes seem to be traveling around the Pacific Rim this year. Chile, Japan, Baja, Indonesia, China... If the pattern holds there should be one on the U.S western coast next. 2010 Earthquakes: 1/3/10 Solomon Islands 7.2 1/10/10 Offshore of Northern California 6.5 1/12/10 Haiti Region 7.0 2/10/10 Illinois 3.8 2/27/10 Offshore Maule, Chile 8.8 3/5/10 Southwest of Sumatra, Indonesia 6.5 4/4/10 Baja California, Mexico 7.2 4/6/10 Northern Sumatra, Indonesia 7.7 4/11/10 Solomon Islands 6.8 4/11/10 Spain 6.3 4/14/10 Western China 6.9 ***** (NYT dealbook) In prepared testimony to the Joint Economic Committee of Congress Federal Reserve chairman, Ben S. Bernanke, said Wednesday that the government must begin to make “difficult choices” to address its gaping deficits, and warned that “postponing them will only make them more difficult,” The New York Times’ Sewell Chan reports from Washington. Mr. Bernanke said that a “credible plan” for reining in federal deficits could help long-term interest rates and raise consumer and business confidence. This is what Bernanke in 2006 and Greenspan in 2001 should have been saying when times were supposedly flush. That is when you balance budgets and use taxes to pay down debt. You don’t do that during a recession. And how much lower can long term interest rates go? They are going up not down, Ben, that is economics 101. This pabulum talk is
disconcerting and really annoying coming from the mouth of a student of the
Depression.
(NYT) Wall Street is hiring again. Among those in demand: traders of exotic financial investments such as derivatives, and risk managers whose job it is to keep companies from repeating the reckless bets that nearly toppled the financial system 18 months ago, The Associated Press reported. And where are these wonderful
experienced risk managers coming from since no one on Wall Street or in
Washington saw the risk coming- or so they say?
With Intel’s
mention of increased desk top PC sales for business in their report last night
we decided to rent NVDA at lower that we sold it a few
weeks ago.
European stocks were higher, with technology stocks tracking gains in
their Asian peers following Intel's strong earnings report. Gold and Oil also
rebounded as market moved higher. The euro closed at $1.37 amid profit taking
in the dollar and reversal in the flight to quality.
April 13, 2010
Thoughts (Yahoo/Finance) Stock futures are down modestly following underwhelming quarterly results from Alcoa. The Dow component posted last evening in-line adjusted earnings of $0.10 per share, but its smaller-than-expected revenue has caused some to question demand and the quality of earnings. Analysts at UBS downgraded shares of AA after the release of the results. Shares of AA are down 1.5% to $14.35 each ahead of the opening bell.... According to the latest headlines about Greece, the country held an auction of short-term debt that was actually oversubscribed. The strong demand was presumably helped by the nod during the past weekend by European Union ministers to provide Greece with financial aid. The February trade balance and import prices for February are due at the bottom of the hour - the consensus calls for a trade deficit of $38.5 billion and a 1.0% monthly increase in import prices. Asian markets were lower
overnight and European bourse indexes are mostly lower at midday. Oil is down
and Gold is also.
The National Federation of Independent Business Index of Small Business Optimism lost 1.2 points in March, falling to 86.8. The persistence of index readings below 90 is unprecedented in survey history. “The March reading is very low and headed in the wrong direction,” said Bill Dunkelberg, NFIB chief economist. “Something isn’t sitting well with small business owners. Poor sales and uncertainty continue to overwhelm any other good news about the economy.” ...After a devastating period of employment reductions, employment change per firm hit the “zero line” in March. .... While actual job reductions may have halted, plans to create new jobs remain weak. ... Only nine percent (seasonally adjusted) reported unfilled job openings, down two points and historically low, showing little hope for a lower unemployment rate. Posted by
http://www.calculatedriskblog.com/
One reason the Fed is keeping interest rtes at 0. It’s called
postponing the problem and hoping. (Bloomberg) -- Record U.S. junk bond sales and a rally in leveraged loans are chipping away (significantly reducing) at the $1.2 trillion wall of maturing debt (of U.S corporations) that’s threatened to cause a surge in defaults. Cablevision Systems Corp., the New York-area cable-TV provider, sold $1.25 billion of bonds yesterday to refinance notes and has extended loan maturities. Since the start of last year, borrowers with high-yield bonds and leveraged loans maturing through 2015 have cut the amount due in the next four years by $196 billion, according to JPMorgan Chase & Co. Last year’s recovery in credit
markets prompted $239.3 billion of speculative-grade bond sales, reducing
chances that debt-laden companies would be trapped as their securities matured.
The 12-month global default rate for junk debt fell to 9.9 percent in the first
quarter from 13 percent at the end of 2009 and will drop to 2.4 percent a year
from now, New York- based Moody’s Investors Service said in a report.
Let the games begin: (Bloomberg) -- A U.S. mandate forcing insurers led by UnitedHealth Group Inc. and WellPoint Inc. to spend 85 percent of revenue from premiums on medical care is the newest front in the battle between the Obama administration and companies over industry profits. In 2009, UnitedHealth spent 82.3
percent of revenue from premiums to pay customers’ medical expenses and
WellPoint spent 82.6 percent, according to company filings. While
individual insurers now decide what categories to include in this ratio, the
health law signed in March demands that all companies define medical costs the
same way beginning in 2011. Many insurers include only
customer claims in their current ratios. They want to keep the number low to
impress investors, said Sandy Praeger, of
the National Association of Insurance
Commissioners. Under the new law, lobbyists would include
technology expenses, wellness programs and pay-for-performance incentives. That
would make it easier to reach the 85 percent threshold, and free up revenue to
boost profit. “This has the potential to be a big issue for the industry next year,” said Carl McDonald, an analyst at Oppenheimer & Co. in New York, in an April 8 note to clients. “Because the details of the calculation are left up to an administration that has been blatantly anti-managed care, it will be difficult for many commercial plans to outperform until this is cleared up.” The law sets two thresholds for
2011: 85 percent for policies involving large companies, and 80 percent for
small groups and individuals.
European stocks ended lower,
dragged down by heavyweight basic-resources stocks on Alcoa's disappointing
earnings and amid persistent concerns over Greece's debt situation. Oil closed
at $83.56 down 50 pennies and Gold was down $10 at $1152. 1 Euro = 1.3561 U.S.
dollars; 1 U.S. dollar = 93.1445604 Japanese yen.
Intel reports after the close today. That report will set the tone
for tomorrow’s trading. The numbers should be very good. How the markets will
react is the question.
It all depends: (www.minyanville.com) Last year, over 10,000 megawatts of wind energy capacity were installed across the United States, according to a recent report from the American Wind Energy Association. "That's 5,700 turbines. Not bad for an economic slowdown," said the Association’s Elizabeth Salerno. Just how much is 10,000 megawatts? It’s enough to power 2.4 million homes, and it generates an equivalent amount of electricity as three nuclear power plants. In fact, Iowa produced 14.2% of its electric power from wind in 2009. News reports herald “another year of continued growth for wind power.” However, opposition groups are sprouting up as quickly as new projects. One of them is called the Alliance to Protect Nantucket Sound. Its mission statement reads: “The Alliance is a nonprofit environmental organization dedicated to the long-term preservation of Nantucket Sound. It was formed in 2001 in response to Cape Wind's proposal to build a wind farm in the Sound.” The wind farm would be comprised of 130 turbines, five miles offshore. The Alliance to Protect Nantucket Sound's website features a statement from the Barnstable Land Trust that says: “There is no other part of our community that offers more sweeping vistas, wildlife diversity and a place of refuge from the steady march of development.” It also loudly proclaims: “OUR QUALITY OF LIFE SHOULD NOT BE FOR SALE!” So, who’s behind the Alliance to Protect Nantucket Sound? Obviously a team of committed conservationists that can’t bear to see Mother Nature’s timeless natural beauty marred by industrial development, right? Well, um...hmmm... One of those dedicated environmentalists is one William Koch, an avid sailor (he won the 1992 America’s Cup) who summers in Nantucket. He said in a 2006 interview, “Why would you want to sail in a forest of windmills?” Koch is on the Alliance’s board of directors and has donated over $1.5 million to the cause. Koch is also the founder, owner, and president of the Oxbow Corporation, which proudly states that it supplies “More than 10 million metric tons of petroleum coke and 8 million metric tons of steam coal…by vessel, rail, barge and truck to customers throughout the United States and over 35 countries each year. In addition, Oxbow supplies over one million metric tons of anode grade, calcined petroleum and metallurgical coke.” Oxbow also “provides screening facilities for coal, petroleum coke and steel raw materials. Oxbow is the majority owner and operator of the Terror Creek Coal Company in Paonia, Colorado.” And Oxbow Mining LLC’s Elk Creek Mine, “located in western Colorado’s beautiful North Fork Valley, produces 6 million tons of high-quality bituminous coal annually.” Yes, the same fellow who rails against the “steady march of development” mines 6 million tons of coal a year in western Colorado’s “beautiful North Fork Valley.” As most informed people know, coal mining is one of the surest ways to preserve an area’s natural beauty: Other “concerned preservationists” who have been involved with the
Alliance to Protect Nantucket Sound (which describes itself on its tax forms as
a “nonprofit environmental organization”) include the late Doug Yearley, former
CEO of mining concern Phelps Dodge and a former member of Marathon Oil’s
(MRO) board of directors, and Glenn Wattley, managing director of
WestBayEnergy, LLC, which offers “business strategy and private investment
placement services for innovative and breakthrough technologies/projects” with
a “diverse client base” including gas and electric utilities and coal, oil, and
gas producers. “As of the end of 2008, the Alliance has spent close to $20 million
just to kill Cape Wind,” Barbara Hill, executive director of Hyannis,
Massachusetts-based Clean Power Now tells Minyanville. “When you look at who is
providing that money to them, it doesn’t take a genius to connect the dots.” “There’s
a very small window of opportunity in the country to seize this industry. Every
installed megawatt of wind creates 15.1 jobs,” Hill points out. “To use Cape
Wind as an example, which would produce 420 megawatts, that’s 6,300 jobs -- 57%
to 58% of which would be in manufacturing.” One of the arguments floated by
Cape Wind opponents is that the outfit won’t be using American-built turbines. “The reason Cape Wind will be using components from companies like Siemens
(SI) is because wind power faces so much opposition from US fossil fuel
interests that companies like General Electric (GE), which was ready to
start production in North Carolina in 2003, said, ‘Screw it, we’re going to
China, instead.’ ” Hill explains. Robert F. Kennedy Jr., a senior attorney at
the Natural Resources Defense Council and author of Crimes Against Nature:
How George W. Bush and His Corporate Pals Are Plundering the Country and
Hijacking Our Democracy, has campaigned aggressively for renewables, like a
400-megawatt solar power complex in the California desert being built by
BrightSource Energy, with backing from names including Google (GOOG) and
Morgan Stanley (MS). He has also fought “tooth and nail” against Cape
Wind, which could produce, on average, 75% of the electrical needs of Cape Cod,
Martha's Vineyard, and Nantucket. Why? You can't see the solar complex from the Kennedy family's
beachfront compound. April 12, 2010
Thoughts (Yahoo/Finance) U.S. stock
futures remain flat, though they had traded with relative strength over night.
Europe's major bourses have also given up earlier gains to now trade flat. As
such, Germany's DAX is unchanged as strength in leader Allianz (AZ)
is offset by laggard BASF. Meanwhile, France's CAC is also unchanged. ArcelorMittal
(MT) is a primary source of weakness that leadership from financial issues BNP
Paribas, AXA (AXA), and Societe Generale. Barclays (BCS)
and HSBC (HBC), a pair of Britain's biggest financial
players, have provided a boon to Britain's FTSE, which is stuck at the
flat line amid weakness in natural resource plays BP PLC (BP),
Xstrata, and Anglo American. The primary headline out of Europe is the agreement
by European Union ministers to provide Greece up to 30 billion euros in
financing at below-market rates. Meanwhile, the International Monetary Fund
will meet today to discuss a financing plan to Greece of its own. In Asia,
Japan's Nikkei put together a 0.4% gain amid strength in NTT Data and Dentsu.
Their strength helped advancing issues finish with an advantage of more than
2-to-1 over decliners. Hong Kong's Hang Seng shed 0.3% as China Construction
Bank and Industrial & Commercial Bank came under sharp pressure amid steps
by officials to tighten policy on real estate. HSBC was able to put together a
strong gain, though. The Shanghai Composite fell 0.5%.
Maybe the SEC should look into the trading in Palm the last two days as
it rose 20% in price. Now we know the reason: Shares in smart phone maker Palm Inc. (PALM) rallied in pre-market
trading on reports that the hard-hit firm has hired investment bankers to get
bids for the company as early as this week. Bloomberg reported that the company
has hired Goldman Sachs and Frank Quattrone's Qatalyst Partners to try and find
a buyer.
Swiss bank UBS (UBS) said it expects to report a first-quarter pretax profit of 2.5 billion Swiss francs ($2.4 billion) as withdrawals by wealthy clients slowed sharply in the latest quarter. The firm said outflows at its wealth management and Swiss bank division were around 8 billion francs in the quarter, compared to 33.2 billion francs in the last three months of 2009. http://www.google.com/hostednews/ap/article/ALeqM5iUvHF452XHkMBXOsG0cg9q3vdAGgD9F1FE2O0 These are the folks who helped U.S. citizens avoid income tax by
illegally hiding their assets. Funny how the big guys are allowed to stay in
business while we get hammered for nitpicky stuff by FINRA and the SEC Two very interesting reads: http://www.nytimes.com/2010/04/04/opinion/04burry.html (WSJ) Just a year ago, the Congressional Budget Office and Office of Management and Budget estimated that the overall bailout would cost more than $250 billion. Last month, though, Treasury Secretary Timothy Geithner said the rescues will amount to "less than 1%" of gross domestic product. The $89 billion projection is less than the cost of the savings-and-loan crisis in the 1980s and early 1990s, which totaled as much as 3.2% of GDP. (Of course that doesn’t include
the $200 billion plus a year the savers are paying by receiving below market interest rates on their
savings. Nor does it include the losses that yield hungry investors will incur
in the future when interest rate are allowed to float to more realistic levels
and the bonds that the investors hold decline in value. But like the spending
on the wars in Afghanistan and Iraq - which have hidden costs in the future
triple or more the current obscene outlays - what isn’t in black and white now
doesn’t count for politicians.)
Investing? http://mediadecoder.blogs.nytimes.com Deadline Extended to Rule on Box-Office Futures Trading The federal commission that
oversees futures trading said on Friday that it had extended to April 16 the
deadline for deciding whether to approve a proposal to create a market for futures
contracts based on movie box-office receipts. A final decision on the
application, submitted by Veriana Networks, was originally set for March 24,
and has now been delayed three times. R. David Gary, a spokesman for the
Commodity Futures Trading Commission, said that no more extensions would be
given. In a statement, Rob Swagger, Veriana’s chief executive, said the company
agreed to the extension at “the request of the chairman of the CFTC and after
individual meetings with commissioners.” A coalition of movie industry players,
led by the Motion Picture Association of America, have engaged in a late push
to block the markets for movie contracts. The opposition was detailed Thursday
in a nine-page letter (PDF) sent to the commission by the M.P.A.A. and the
Directors Guild of America, the International Alliance of Theatrical Stage
Employees and the Independent Film and Television Alliance.
Comment on the China Property boom (bubble?). http://www.cibmagazine.com.cn/Columnists/Andy_Xie.asp?id=1283&no_room_to_relax.html .... China's property market is a
massive bubble. The stock of residential properties, developers' inventories,
and land that local governments have pledged to banks may exceed by three times
the gross domestic product. Rental yields in most cities are too low to cover
depreciation costs. In major cities, the price-to-income ratio, a measure of
housing affordability, is routinely above 20, which means that it would take an
average mainlander 20 years to buy the average property using their total
income. The bubble can still continue because China's banking system has plenty
of liquidity – thanks partly to hot money and because local governments have
many levers to channel bank liquidity into the market. But the longer the
bubble lasts, the more damage it will do to the economy...
Goldman Sachs on Monday lowered
its 2010 forecast for gold prices to $1,165 an ounce and its 2011 forecast to
$1,350.
Oil ended at $84.44 down 48
pennies. Gold lost $5 to $1155. Most of Europe was up a bit and the euro gained
to $1.37 on the Greek bailout.
(minyanvill.com) In the first
quarter, according to data we mulled over this morning from Lipper FMI,
investors did keep on committing a lot
of capital to bond funds: $92.6 billion in the first quarter, to be exact. But,
interestingly, your friends and neighbors also put some of their hard-earned
money to work in US stock funds. Domestic equity funds, excluding
exchange-traded funds, had inflows of $13.5 billion. That’s in comparison to
outflow of $24.2 billion in the year-ago period, according to Lipper number
crunchers.
***** April 9, 2010
Thoughts (MarketWatch) Hong Kong led Asian markets higher in a generally positive session Friday, with investors weighing up a round of upbeat earnings results and what appears to be a growing receptiveness in Beijing towards currency reform. Australian coal stocks surged on takeover activity. In Europe, stocks rose as news on U.S. consumption trumped worries over Greece's finances and Petroplus rose after agreeing to buy Valero's (VLO) idled Delaware refinery in a $220 million deal.
J.P. Morgan downgraded Alcoa (AA) to neutral from overweight and
removed it from the broker's focus list on its estimated 2011 earnings per
share of 48 cents and lower price target of $16.50. "Although Alcoa has
taken significant costs out of its business by closing high cost operations and
through additional procurement and productivity savings, we think it will still
struggle to generate attractive returns at our strategist's 2011 aluminum price
forecast of 92 cents/pound," the broker said.
(WSJ) Major banks masked their
risk levels in the past five quarters by temporarily lowering their debt just
before reporting it to the public, according to data from the New York Fed. Private-equity firms KKR &
Co. and Bain Capital Partners are prepping initial public offerings for three
of their larger holdings—retailer Toys "R" Us Inc., hospital chain
HCA Inc. and semiconductor business NXP Semiconductors, according to people
familiar with the deals. If the stock market continues its ascent, or at least
remains stable, those IPOs are expected to price in the coming months, these
people said. (This would mark the third round trip –IPO, taken private, IPO-
for HCA.)
Numbers Point to a Recovery http://dealbook.blogs.nytimes.com/2010/04/09/norris-numbers-point-to-a-recovery/
Mounting concern over the Greek debt crisis and disappointing U.S. jobs
data weighed on European stock markets, but the euro managed to recover from
earlier lows. Oil ended at $84.81 down pennies and gold was up $7 to $1160. 1
Euro = 1.3467 U.S. dollars; 1 U.S. dollar / Japanese yen = 93.4404784.
April 8, 2010
Thoughts
(WSJ) Asian markets fell Thursday, weighed by a weak finish on Wall
Street with Japan's shares also dragged down by weaker-than-expected economic
data. The Nikkei shed 1.1%. The yield on Greek 10-year bonds rose above 7.4%, a
fresh record high, as concern over Greece's solvency galloped higher Thursday.
U.S. retailers reported strong year-over-year sales gains in March, adding
evidence that consumers are feeling more confident. The ECB is expected to keep
its key rate unchanged and indicate that borrowing costs will remain low for
much--if not all--of this year, as the recovery from recession in the 16
countries that use the euro currency remains fragile. GM posted a $4.3 billion
loss for its first six months out of bankruptcy, but the car maker envisions a
turnaround in 2010. Euro Drops Below $1.33 as anxiety over Greece's funding
problems and sovereign debt risk in Europe intensified, prompting investors to
seek refuge in the safety of the dollar. European stocks fell, along with the
euro and European bond yields, as investors focused on Greece and its debt
problems.
(MarketWatch) Shares in US Airways Group and UAL Corp. jumped in pre-market trading following a report late Wednesday that the two companies are engaged in merger talks. The two airlines are "deep" in merger discussions, though a transaction isn't expected to be announced for several weeks, the New York Times reported. The report came as British Airways and Iberia signed a merger pact, taking on the name International Airlines Group in the hope that more carriers will join them. )Pretty soon there will be one airline in the world and tickets will sell for $100 to anywhere but carry on bags will cost you $500 each and it will cost you $10 per visit to go to the bathroom.)
The number of people applying for unemployment benefits rose 18,000 to
a seasonally adjusted 460,000 in the week ended April 3, the Labor Department
reported. Economists surveyed by MarketWatch had expected a result of 442,000.
The four-week average of initial claims -- a better gauge of employment trends
than the volatile weekly number - rose 2,250 to 450,250.
Chuck
Prince and Bob Rubin of Citi are sorry but really, who would have guessed
that their bank could lose that much money. And Chuck says his traders tried
but the consultants were the folks who told them to do package and sell CDOs.
And they aren’t giving back any of their golden parachutes or other goodies.
A client wrote to
us asking for money to pay taxes on gains realized in 2009. We wrote back to
them saying that losses in 2008 should have carried forward and offset gains in
2009. If any of our clients are paying taxes on 2009 gains please make sure
that the 2008 losses were carried forward. Happily clients will have to pay
taxes in 2010 since all accounts have gains this year that we plan on keeping. A charge that when fund assets
crumbled, Morgan Keegan Deceived Its Brokers and Clients: http://www.nytimes.com/2010/04/08/business/08place.html?dbk Mounting concern over the Greek
debt crisis and disappointing U.S. jobs data weighed on European stock markets,
but the euro managed to recover from earlier lows. 1 Euro = 1.3356 U.S.
dollars; 1 U.S. dollar / Japanese yen = 93.1445604. Gold was unchanged at $1152
and Oil dropped pennies to $85.56.
April 7, 2010
Thoughts (WSJ) Asian markets finished mainly higher Wednesday, with resource shares among the bigger advancers in Hong Kong and strength in financials lifting stocks in Japan, but China real estate developers fell on fears of possible further monetary tightening from the government. Auto makers Renault and Nissan will form a partnership with Daimler that will include cross-shareholdings and joint research and development, the three companies said. As part of the partnership, Renault and Nissan will acquire stakes in Daimler, totaling about 3.1% of the German company’s stock. Daimler will also get stakes of the same size in both Renault and Nissan. The three companies plan to jointly develop a new generation of small cars, share engines and cooperate in small commercial vans. GM posted a $4.3 billion loss for
the second half of 2009, in the first official accounting of the auto maker's
balance sheet since the company emerged from bankruptcy protection.
Investors’ Intelligence has 48% bulls and 19% bears, the same as last week. ***** There is another article titled: People in Afghanistan Get High... Are We Just Figuring That Out For The First Time? You Could Have Asked A Hippie... Or A Soldier
European stocks edged lower as growing concern about Greece's ability
to finance its debt and downbeat economic data undermined investor optimism.
Gold gained $17 to $1152 and Oil dropped pennies to $86.64.
April 6, 2010
Thoughts
(WSJ) Asian markets finished mixed as Australia's benchmark index
tapped an 18-month high, while Japanese stocks pulled back following recent
gains. Oil has an $86 handle and the Euro is $1.34 while the dollar
equals 94 yen as the trading day begins. There is a Fed meeting today and
stocks are slightly weaker ahead of the opening.
AT&T
Inc. said it will spend about $1 billion in 2010 to extend its mobile network
for small business and support the proliferation of mobile computing devices.
"IP-based solutions and applications have become ever more important to
companies aiming to take their productivity to a new level while transforming
their operations to adapt to their customers' changing needs," said Ron
Spears, chief executive of AT&T Business Solutions.
Greece reportedly wants to amend a standby aid plan to avoid the
imposition of onerous fiscal measures by the International Monetary Fund. Greek
Prime Minister George Papandreou fears that added austerity measures that the
IMF probably would require could cause social and political unrest, Market News
International reported, according to Reuters.
A federal appeals court ruled that the FCC exceeded its authority when it issued
a 2008 citation against Comcast for throttling Internet traffic from
high-bandwidth file-sharing services. A three-judge panel overturned the
citation, ruling that Congress had not given the FCC the power to regulate an
Internet service provider's network management practices. The court's decision
could throw into question the FCC's authority to impose open Internet rules.
Investors largely shrugged off
another round of Greece-related fretting to push European stock markets to
their highest levels in 18 months or more, boosted by strong economic readings
out of the U.S. over the region's long Easter break. The euro lost ground
against the dollar, 1 Euro = 1.3372 U.S.
dollars; 1 U.S. dollar / Japanese yen = 93.9937964. gold was $1135 up $2 and
Oil was $87.42 down 24 pennies.
Bank stocks were higher all day
before the Fed announcement and remained so after the announcement. The Fed
said they will keep rates low for an extended
period which does not mean a set time. What they mean is that they will
keep rates low unless they don’t. Go figure.
The
major measures were mixed with the NAZZ and S&P 500 higher and the DJIA
lower. Breadth was flat and volume was light. The banks were strong all day as
the Fed confirmed that they will continue to let the banks earn untoward
profits on the backs of savers to make up for the Fed’s and the banks’ dumb
decisions of prior years.
April 5, 2010
Thoughts Most of Asia and Europe are
closed today. U.S. futures are indicating a higher opening.
Beware of unintended consequences. (WSJ) Some Republicans are
worried that an anti-government surge among conservatives will lead to lower
participation in the U.S. census, which they fear could reduce the number of
Republican seats in Congress and state legislatures. The census, which is
currently being collated and is gathered every ten years, dictates the
distribution of federal funding, how many House members each state gets and how
congressional and legislative districts are drawn within states. Conservative
activists this year have argued it is unconstitutional for the census to ask
anything beyond the number of people in a household. This year's census form
also seeks information on race, gender and age, among other things, and filling
it out is required by law. The census has asked similar questions for decades.
(WSJ)U.S. employers created jobs at the fastest pace in three years in
March, but nearly one-third came from temporary hiring for the Census. Nonfarm
payrolls rose by 162,000, the largest gain since March 2007. That compared to a
revised 14,000 drop in February, when the number was likely depressed by the
blizzards that hit the East Coast. The unemployment rate, calculated using a
different survey, stayed at 9.7%. Economists polled by Dow Jones Newswires were
expecting March payrolls to rise even higher. Now that we have a
good sized position in Ford Warrants we sold our Ford common for a scratch loss
in most accounts. We have the same downside risk in the warrants because at
least for the next year the warrants will maintain a $1 or more premium and the
warrants have twice or more upside over the next two years if Ford performs as
we think. We really do own these warrants to hold. Or at least that is our
present thinking. The other day we wrote of Ford’s potential earnings. We were off on our estimate of $10 per
share because of the greater number of shares outstanding. We do think $5 per
share is easily possible which would be $18 billion in bottom line earnings on
$175 billion in sales.
Treasuries are under selling pressure with the ten year approaching a 4% yield. Folks are seeking yield and the bond funds are all too happy to comply by selling quality and buying junk where the yields are. Unfortunately when the Fed tightening commences the principle loss will be much more than the current yield gained on the switch. http://online.wsj.com/article/WSJ_hps_MIDDLEThirdNews
Berkshire Hathaway issued bonds last week that had a lower yield
than comparable Treasuries. When buyers are willing to pay more for the bonds
of a company run by Warren Buffet -certainly a very smart man but he is
eighty- than bonds issued by the Treasury the markets are haywire.
Institute for Supply Management: March 2010 Non-Manufacturing ISM Report On Business® Economic activity in the
non-manufacturing sector grew in March for the third consecutive month, say the
nation's purchasing and supply executives in the latest Non-Manufacturing ISM
Report On Business®. The report was issued today by Anthony Nieves, C.P.M.,
CFPM, chair of the Institute for Supply Management™
Non-Manufacturing Business Survey Committee; and senior vice president – supply
management for Hilton Worldwide. "The NMI (Non-Manufacturing
Index) registered 55.4 percent in March, 2.4 percentage points higher than the
seasonally adjusted 53 percent registered in February, and indicating growth in
the non-manufacturing sector. The Non-Manufacturing Business Activity
Index increased 5.2 percentage points to 60 percent, reflecting growth for the
fourth consecutive month. The New Orders Index increased 7.3 percentage points
to 62.3 percent, and the Employment Index increased 1.2 percentage points to
49.8 percent.
As Crude Oil trades above $86 a barrel below is an interesting article
from McClatchy newspapers: What's driving up oil prices again? Wall Street, of course By Kevin G. Hall | McClatchy Newspapers http://www.mcclatchydc.com/2010/04/01/v-print/91487/whats-driving-up-oil-prices-again.html WASHINGTON — Oil consumption has fallen, demand from U.S. motorists for
gasoline is flat at best and refiners that turn crude into fuel are operating
well below capacity. Yet oil prices keep marching toward $90 a barrel, pushing
gasoline toward $3 a gallon in many markets, and prompting American drivers to
ask, "What gives?" Blame it on the same folks who brought you $140 oil and $4 gasoline in
2008: Wall Street speculators. Experts attribute much of the recent rise in prices to flows of
speculative money into oil markets. These bets are fueled by investor
expectations that the U.S. and global economies are poised to return to growth
and thus spark increased use of oil. Strong growth in China supports the
narrative of rising oil consumption and tightening supplies. "The thinking goes that rising stock (market) prices implies
expanding business activity, implies growing energy demand, implies rising oil
prices. I think you can make that case, but it's awfully weak," said
Michael Fitzpatrick, vice president-energy for MF Global, a financial firm that
brokers the sale of contracts for future delivery of oil. While there are signs of U.S. economic recovery, such as a slight
uptick in consumption and strong manufacturing data, there are plenty of ho-hum
signs too, including dismal construction spending and continued high
unemployment. "I just don't think if you look across the entire spectrum of the
macro-economy that it creates a picture of a growing body of incontrovertible
evidence that there is a strong, sustainable recovery. On the last day of July, oil traded at $67.50 a barrel and gasoline
sold at a nationwide average of $2.52 a gallon for regular unleaded. On
Thursday, oil prices settled at $84.87 on the New York Mercantile Exchange, and
regular unleaded gasoline averaged $2.80 a gallon and more than $3 on the West
Coast, according to the AAA. "It's the story we've been talking about . . . . It's really about
oil being an attractive investment for investors right now," said Troy
Green, a AAA spokesman. "You've seen quite a bit
of money flooding into the oil markets because of that." What's different about today's price run-up from two or three years ago
is that oil is now in ample supply. "If you look at the fundamentals right now, there is certainly an
abundance that is available (of oil) to the market for the next 12 months or
so. It's not a near-term supply shortfall," said David Dismukes,
the associate director of the Center for Energy Studies at Louisiana State
University in Baton Rouge. U.S. motorists and businesses consumed 18.69 million barrels per day
(bpd) of petroleum product last year. That's projected to rise slightly this
year to 18.89 million bpd. However, it remains far below peak consumption of
20.80 million bpd in 2005. The latest data from the Energy Information Administration, the
statistical arm of the Energy Department, shows that as of mid-March, U.S.
refiners were operating at 81.1 percent capacity. They're making eight gallons
of gasoline for every 10 they're capable of producing, a clear sign that demand
is down. Perhaps the only argument that would justify rising prices is that
global consumption is expected to grow by 1.6 million bpd to 86.6 million bpd
this year, according to the Paris-based International Energy Agency. Even so, there's 6 million bpd of oil that's shut-in, a technical way
of saying that recoverable oil is being left in the ground by the world's oil
producers. "When you look at inventories and shut-in capacity, (oil) prices
today are above what those would indicate," said Daniel Yergin, the author of "The Prize: The Epic Quest for
Oil, Money & Power," the recently updated Pulitzer Prize-winning book
that chronicles the history of oil. When oil traded above $140 a barrel nearly two years ago and pundits
warned that the world was running out of oil, Yergin
suggested that a glut of oil would come onto the market in 2010 and beyond. The
6 million bpd of oil now on the sidelines suggests that he was right. Today's spare production capacity is three times what it was in 2004
and 2005, when supply actually was tight. The Organization of Petroleum Exporting Countries signaled this week
its concerns about rising prices by not calling for hard enforcement of
production quotas by its members. That suggested the cartel will tolerate an
open-spigot policy by its 12 members as needed to stabilize prices. "While OPEC was silent on any threat to the recovery, speculation
continues that the cartel is deliberately allowing members to exceed production
quotas in order to limit upward price pressure," wrote analyst Matt
Robinson, in a research report Thursday by forecaster Moody's Economy.com. Rising oil and gasoline prices are deja vu
all over again for Michael Masters. The hedge fund manager has crusaded for
legislation that would prevent so much speculative money in the oil markets. Wall Street is "gaming" the price of
oil, he warns. "If you're a bank, and you know there is going to be a large
amount of investor inflows into the commodities market, you are going to
position yourself ahead of them . . . You want to be a seller at a higher
price," explained Masters, noting that large Wall Street banks invest for
themselves in these markets even as they also broker the oil investments of
others. What's abundantly clear, he and others argue, is that an oil contract's
price today has little to do with the supply of and demand for oil. "It's a capital asset now. Once the majority of participants are
capital-asset folks, common sense would tell you it's going to be traded like a
capital asset . . . and consumers pay," Masters said. "It wasn't that
way in the past." What can be done? The Commodity Futures Trading Commission is weighing a proposal to put
global limits on how many oil contracts any one market player can buy or sell,
and legislation to revamp financial regulation that's expected to pass Congress
this year could force greater disclosure by oil traders to regulators. Neither, however, promises imminent relief at the pump. April Fools' Day 2010
Thoughts http://en.wikipedia.org/wiki/April_Fools%27_Day *****
The prince and
princess are here and so we will be in and out for the next week. Markets are
closed tomorrow. No post although banks are open and the monthly Employment
report will be issued.
Asia and Europe were higher
overnight. Blackberry (Research in
Motion) reported better than
earnings but sales were below estimates and the share price fell in after hours
trading yesterday. Since the share price had jumped $20 in the last month the
pullback on the news was not untoward.
The number of people applying for unemployment benefits fell 6,000 in the week ended March 27 to a seasonally adjusted 439,000, the Labor Department reported Thursday. Economists surveyed by MarketWatch had expected a result of 443,000. The four-week average of initial claims -- a better gauge of employment trends than the volatile weekly number - declined by 6,750 to 447,250, the lowest level since September 2008. For the week ended March 20, continuing claims fell 6,000 to 4.66 million. The four-week average of these ongoing claims declined 12,500 to 4.68 million, the lowest level since January 2009. In the week ended March 13, about 6 million jobless workers, not seasonally adjusted, were receiving extended federal benefits, up 264,000 from the prior week. March manufacturing activity
across the 16-nation euro zone expanded at the fastest clip since June 2006,
with the euro-zone manufacturing purchasing managers’ index rising to 56.6 from
54.2 in February, Markit Economics reported Thursday. A reading of more than 50
signals an expansion in activity, while a figure of less than 50 indicates a
contraction. The final reading for March exceeded a preliminary estimate of a
rise to 56.3.
Ford said Thursday its US sales rose a day adjusted 34% in
March amid signs of a broad recovery as every brand and category recorded
gains. "Ford's plan is working," said Ken Czubay, Ford Motor Co vice
president for US marketing, sales and service. "People increasingly are
discovering that the Ford difference is the strength of our fresh, new product
lineup, especially our leadership in quality, fuel efficiency, safety, smart
technologies and value." Ford did
not provide a market share forecast but said it had expanded its retail share
for the 17th time in the past 18 months.
The ISM Manufacturing Index for March was 59.6, which not only exceeds the reading of 57.0 that had been expected, but it is also the best reading in more than five years. Construction spending in
February, it fell 1.3% month-over-month after a 1.4% monthly decline in
January. The consensus had called for a 1.0% monthly decline.
Looting Main
Street http://www.rollingstone.com/politics/story/32906678/looting_main_street/print This is well worth the read. A sample: ... There was so much money to be made bilking these dizzy Southerners that
banks like JP Morgan spent millions paying middlemen who bribed — yes, that's
right, bribed, criminally bribed — the county
commissioners and their buddies just to keep their business. Hell, the money
was so good, JP Morgan at one point even paid Goldman Sachs $3 million just to
back the xxxx off, so they could have the rubes of Jefferson County to fleece
all for themselves.... Birmingham
became the poster child for a new kind of giant-scale financial fraud, one that
would threaten the financial stability not only of cities and counties all
across America, but even those of entire countries like Greece. While for many
Americans the financial crisis remains an abstraction, a confusing mess of
complex transactions that took place on a cloud high above Manhattan sometime
in the mid-2000s, in Jefferson County you can actually see the rank criminality
of the crisis economy with your own eyes; the monster sticks his head all the
way out of the water. Here you can see a trail that leads directly from a
billion-dollar predatory swap deal cooked up at the highest levels of America's
biggest banks, across a vast fruited plain of bribes and felonies — "the
price of doing business," as one JP Morgan banker says on tape — all the
way down to Lisa Pack's sewer bill and the mass layoffs in Birmingham. ....
Meet Primerica, the New Wall Street IPO That's Really A Multi-Level Marketing Scheme Read more:
http://www.businessinsider.com/citigroup-primerica-ipo-2010-4
Life really is tough at the top. Top executives collected less pay in 2009, the first time in 20 years that compensation declined for two consecutive years. Median pay for top 200 chief executives was $6.95 million. And the top 25
hedge fund managers in pay averaged pay of $1 billion each. The Federal tax rate on the hedge fund manager’s
earnings was 15% because Congress in its wisdom decided they shouldn’t have to
pay regular rates of 35%. As a result the Treasury was gypped out of $5 billion
in taxes. And all those 25 managers had to do was to each donate a relatively
few dollars to the respective political parties way back in 2001 to save the $5 billion in taxes in 2009 and
probably $50 billion for all hedge fund managers since the special exemption
was enacted. And the Senate refuses to revoke the special treatment.
European stocks ended higher on the first day of the second quarter,
helped by a slew of upbeat manufacturing data ahead of the long holiday
weekend. Oil ended at $85.55 up 89 pennies and Gold gained $12 to $1126.
For April Fools’ Day: We are reprinting below an essay from Bloomberg because it explains the AIG/ Goldman Sachs nexus. We want to have it for our historical record of the past few years and think eventually the link will disappear. http://www.bloomberg.com/apps/news?pid=20601109&sid=arFjbsBO7BS8&pos=10# How Lou Lucido
Let AIG Lose $35 Billion with Goldman Sachs CDOs (Bloomberg) -- Joseph Cassano insisted American International Group Inc. would be fine. The insurer had quit guaranteeing securities tied to U.S. subprime loans in 2005, before lenders got reckless, the head of AIG’s derivatives unit told investors on Dec. 5, 2007, as home prices plummeted and mortgage losses mounted. Cassano didn’t mention Lou Lucido, 61, a guitar-playing bond buyer at TCW Group Inc. in Los Angeles with a taste for the Rolling Stones. Throughout 2006 and 2007, Lucido had been buying bundles of subprime loans for an investment pool that AIG was bound by contract to insure against failure. In one such purchase, 11 months before Cassano, 55, reassured shareholders, Lucido’s team bought $7 million of a mostly subprime bond. They put it in a $1.5 billion fund managed by TCW called Davis Square Funding III Ltd., which was created by Goldman Sachs Group Inc. and registered in the Cayman Islands. A few months later, Lucido bought $3 million more. By May 2008, the bond was worthless. Without having to ask AIG’s permission, firms such as TCW, hired to oversee funds called collateralized debt obligations, replaced maturing assets with junk that quickly went bad. Managers including Lucido said they didn’t realize how severe the mortgage crash would be and were called upon by CDO contracts to reinvest. At the same time, buying riskier assets could mean bigger paydays. Perverse’ Incentives “The incentive was perverse,” said Michael Lea, a finance professor at San Diego State University and former chief economist at mortgage giant Freddie Mac. “The fee structure encouraged TCW to put lower-rated bonds into CDOs over time.” A look at the month-by-month transactions in one CDO -- Davis Square III, named for a difficult-to-navigate section of Somerville, Massachusetts, near Harvard University -- shows how collateral replacements helped drive New York-based AIG to the brink of disaster. The insurer ended up paying $616 million to make up for Davis Square III’s loss in value and more than $35 billion overall, liabilities that helped push it into insolvency in September 2008. Lucido’s team, following criteria set by Goldman Sachs, changed almost one-third of the collateral in Davis Square III after the CDO’s creation in 2004, according to data compiled by Bloomberg from Moody’s Investors Service reports. The securities were mostly backed by the types of newer loans that are going bad at more than twice the rate of older ones. By November 2008, after U.S. taxpayers rescued AIG with a bailout that later swelled to $182.3 billion, even the highest-rated parts of Davis Square III had lost almost half their value. ‘Standards Fell’ “Mortgage underwriting standards fell so much that replacing a bunch of 2004 bonds with 2006 and 2007 bonds definitely screwed AIG,” said Thomas Adams, a former managing director at bond insurer Ambac Financial Group Inc. and now a partner at New York law firm Paykin Krieg & Adams LLP. CDOs were at the heart of the financial crisis that sparked the highest U.S. jobless rate in a generation. They were among the largest contributors to the $1.8 trillion of losses at the world’s largest financial firms since the start of 2007, according to data compiled by Bloomberg. The U.S. Securities and Exchange Commission is investigating how Wall Street banks bet against mortgage-linked securities to profit as their clients took losses, according to people familiar with the matter. As part of its examination of the market, the agency is looking at collateral replacement, said an SEC official with knowledge of the probe who asked not to be identified because he wasn’t authorized to comment. Collateral Triggers Replacing good collateral with bad helped erode Davis Square III’s value. Declines in quality added to the cash AIG had to pay to holders of its insurance because its Financial Products division, headed by Cassano, made agreements with banks that included what are called collateral triggers. That was a feature other bond insurers didn’t offer, Adams said. The triggers kicked in when the value of the CDOs declined or if a rating company downgraded AIG’s creditworthiness. By December 2008, the insurer had paid out more than $35 billion, according to a list of collateral provided by AIG to Congress. When the Financial Products unit agreed to guarantee certain top-rated CDO pieces, it didn’t envision that assets added later could cause losses, according to a person with knowledge of AIG’s thinking who spoke on condition of anonymity because he wasn’t authorized to comment. As long as managers adhered to investment criteria outlined in the prospectus, there was little AIG could do, according to Mark Herr, a spokesman for the insurer. Joseph Warin, Cassano’s lawyer, declined to comment. ‘Informed Decisions’ Davis Square III’s 209-page prospectus spelled out the risks for potential investors. “Characteristics” of replacement collateral wouldn’t necessarily be the same as those of existing assets, it said. It also spelled out Goldman Sachs’s investment guidelines, which allowed as much as half of Davis Square III to be bonds backed by subprime mortgages, given to people with bad or limited credit histories. Among other constraints, TCW needed to meet collateral ratings requirements and maintain a mix of lenders and types of debt. Lucido and his team followed the guidelines and avoided certain types of mortgages and particular issuers as the home- loan market got dicier, he said in an interview. “We made informed decisions based on the underwriting criteria at the time and felt we were working toward our investors’ best interests,” he said. Lucido left TCW in December to become executive vice president of DoubleLine Capital LP, a Los Angeles investment firm founded by his former boss, Jeffrey Gundlach. Maiden Lane III Erin Freeman, a spokeswoman for TCW, said her firm bought only collateral for Davis Square III that met the guidelines and didn’t allow Goldman Sachs to dictate what to buy. “TCW has managed these assets prudently and in the best interests of investors,” Freeman said. By December 2008, more than 170 AIG-insured pieces of CDOs, including parts of Davis Square III, had been taken over by a U.S. taxpayer-funded asset pool called Maiden Lane III after the street where the Federal Reserve Bank of New York is located. Goldman Sachs and TCW’s parent, Paris-based Societe Generale SA, were paid the most before and after the New York Fed reimbursed AIG’s customers in full. Societe Generale got $16.5 billion, more than any other firm. Goldman Sachs was second with $14 billion. Together they accounted for almost half of the payouts. New York-based Goldman Sachs was the biggest underwriter of CDOs taken over by Maiden Lane III. TCW managed about twice as many CDO assets that ended up in Maiden Lane III as anyone else, according to the AIG list and data compiled by Bloomberg. Teen Bodybuilder Among other overseers of AIG-guaranteed CDOs were Ellington Management Group LLC’s Michael Vranos, a former teen Mr. Connecticut bodybuilder who ran the top-ranked mortgage-bond underwriter in the early 1990s, and Michael Barnes, whose Tricadia Capital Management LLC is so secretive that, when asked to discuss CDO reinvestment, said, “We as a policy do not comment on anything.” That was the thing about CDOs, too. They were secretive. Prospectuses ran hundreds of pages yet often failed to detail a single purchase. What assets they held couldn’t be seen publicly. And they gave banks the chance to repackage risky securities and market them as safe investments, at the same time allowing firms to bet that mortgages would fail. CDO Tranches CDOs are investment pools made up of anything that provides a flow of cash. They can contain loans to companies used in leveraged buyouts or securities backed by commercial and residential mortgages, auto loans, credit-card receivables, even pieces of other CDOs. Underwriters such as Goldman Sachs split CDOs into classes, or tranches, categorizing them by how likely they were to continue paying. The biggest group, called the senior classes, accounted for 93 percent of Davis Square III and got top ratings from Moody’s, according to a September 2004 Fitch Ratings analysis. In exchange for being first under the waterfall of payments, senior-class investors received less interest. Calyon, a unit of Paris-based Credit Agricole SA, bought most of the senior portion of the CDO, which was insured by AIG. Investors in a smaller tier, known as the mezzanine, were paid a higher rate because they got money only after the senior investors did. The “mezz” pieces made up a little more than 6 percent of Davis Square III and received lower credit ratings. Equity Stakes The tiniest slice, less than 1 percent in the case of Davis Square III, was made up of what’s called equity, which wasn’t rated by credit companies. Equity investors were paid only after everyone else. They received a higher return while the going was good because they took the most risk and were the first ones wiped out if borrowers quit paying their mortgages. While Lucido said he didn’t own a stake in Davis Square III, he said he did have his own money riding on the equity pieces of some CDOs. Goldman Sachs did own an equity stake in Davis Square III, according to Michael DuVally, a spokesman for the firm, who declined to say how much it was. Even so, the bank didn’t try to influence TCW’s investment decisions, DuVally said. It didn’t have to. TCW was promised 20 percent of what was left over after equity investors got 10 percent returns, according to a Goldman Sachs sales pitch to potential equity investors dated September 2004. That was on top of its fee of 0.10 percent of the CDO’s assets, according to the prospectus. Trickle Down Such fees gave managers incentive to move riskier assets into CDOs because the higher returns they produced were likelier to trickle down to equity investors. That was especially true in 2006 and early 2007 when projected earnings on safer securities were dwindling, said Andrey Krakovsky, chief investment officer at New York-based asset manager Tacticus Capital LLC. As existing collateral shrank because of mortgage prepayments, bond maturities and pay-downs, buying safer securities meant “equity investors would have gotten hammered because there wouldn’t have been enough cash flow for them,” Krakovsky said. He said managers often owned equity pieces of CDOs and earned fees linked to their returns. Howard Hill, a former Babson Capital Management LLC executive who helped start securitization-related departments at four banks, said CDO managers had little choice but to reinvest in what he called “crappier ‘06, ‘07 production’’ because older, better-quality securities weren’t available. Abacus Slice Underwriting standards deteriorated in those years. Cumulative loan losses as a percentage of original balances are expected to be 18.7 percent for subprime mortgages underlying 2005 bonds, 38.4 percent for 2006 bonds and 48.1 percent for 2007 securitizations, according to Moody’s. ‘‘The managers tried their best to be able to keep the thing alive and make money,” Hill said. “The rules were written by the underwriters, weren’t they?” One of Lucido’s earliest purchases for Davis Square III was a $12 million slice of Abacus 2004-1, a CDO created by Goldman Sachs in July 2004 and filled with credit-default swaps, according to the prospectus. The swaps were side bets that paid off if an investment failed. Goldman Sachs or its customers were essentially using Abacus as a way to short, or bet against, certain mortgage bonds. They would sell the swaps as an investment to customers who took the other side of the bet, believing the mortgage bonds would keep paying. CDOs made up of these side bets and not the actual mortgages were called synthetic CDOs. Goldman Sachs By 2007, Goldman Sachs had moved so many securities into Abacus 2004-1 that much of the collateral didn’t exist when the CDO was created, according to data compiled by Moody’s. While AIG insured parts of Abacus deals, Goldman Sachs didn’t change the collateral in the pieces AIG insured, DuVally said. Other swaps that Goldman Sachs used to bet against subprime mortgages were contained in the $7 million bond that Lucido bought in January 2007, according to the prospectus. The purchase was made a month after Gundlach, TCW’s chief investment officer, told Barron’s it was “silly optimism” to think housing prices had bottomed out. The bond was known as GSCSF 2006-3GA C after its manager, New York-based GSC Group, whose chief executive officer, Alfred C. Eckert III, was a former Goldman Sachs executive. It paid 0.90 percentage point more than another subprime-backed bond issued the same month with the same rating, according to data compiled by Bloomberg. ‘Toxic’ Resecuritizations It offered a higher return because it was a resecuritization, a repackaging of securities that bankers used to “shuffle the deck to hide the bad ace,” according to Ann Rutledge, founding principal of R&R Consulting, a structured- finance adviser in New York. The bond was rated A2 by Moody’s, the firm’s sixth-highest rating. Asset managers typically bought resecuritizations because of their credit ratings and didn’t bother to examine the thousands of mortgages that made up each of the hundreds of bonds in the CDO, according to Rutledge, co-author of “The Analysis of Structured Securities,” published in 2003 by Oxford University Press. “Resecuritization has always been toxic,” Rutledge said. Between May 2005 and May 2007, Davis Square III’s ownership of pieces of other CDOs rose to 11 percent of its total assets from 8.5 percent, according to data compiled by Moody’s. Over the same period its credit ratings on investments drifted about a quarter of a grade lower, the data show. ‘Deals Go Bad’ “A lot of managers and equity investors were looking for ways to make sure these deals cash-flowed,” said James Frischling, president of NewOak Capital LLC, a New York investment and advisory firm, and former head of CDO groups at two European banks. “That really does explain why seasoned deals go bad,” he said, referring to CDOs that have been around a while. At the same time TCW bought the GSC bond for Davis Square III, it purchased a $5 million bundle of Alt-A home loans underwritten by Goldman Sachs. Alt-A mortgages were available to borrowers who didn’t show proof of income. That security, GSAA 2007-1 M2, also quit paying, according to Moody’s. In February and March 2007, after London-based HSBC Holdings Plc, Europe’s biggest bank, announced it was setting aside more money to cover losses on U.S. subprime mortgages, Lucido’s team bought $29.7 million of subprime bonds. “It’s not that we’re arrogant, or that we’ve got a lot of hubris,” Lucido told the Los Angeles Times in March 2007, “but we think we’ve got the position and the talent in place to be able to analyze and manage through this period.” Bonded Blues Band One of TCW’s March 2007 purchases, consisting of loans originated by Option One Mortgage Corp., then a unit of H&R Block Inc., quit paying by the end of October 2008. Between April and May 2007, TCW bought another $48 million of securities for Davis Square III, including three bundles of Alt-A mortgages underwritten by New York-based Morgan Stanley. Two of those bonds have stopped paying. The asset manager also bought a subprime-mortgage-backed bond called HASC 2007-HE2 2A4, underwritten by HSBC. It was rated Aaa by Moody’s, its top ranking. As of the end of January, 67 percent of the borrowers of mortgages backing the bond were at least two months late with payments, according to data compiled by Bloomberg. “Unfortunately, things deteriorated in an industry way that went beyond even our worst range of forecasts,” said Lucido, who’s on the dean’s executive board at New York University’s Stern School of Business and who performed with other mortgage-securities executives in the Bonded Blues Band in the 1990s. Stockton CDO In June and July 2007, while two Bear Stearns Cos. hedge funds unraveled as a result of subprime-linked investments, Lucido’s team bought a $10 million piece of another mostly subprime-mortgage CDO, Stockton CDO Ltd., underwritten by Brussels-based Fortis Securities LLC. Moody’s gave it a top rating. It failed within a year. As central banks around the world made emergency loans to financial firms in August 2007 to thaw a freeze in lending triggered by the failure of subprime mortgages, TCW continued to buy bonds backed by risky loans. From July 30 to Oct. 24, it purchased about $50 million of such bonds, according to Moody’s. Between May 2005 and November 2008, when the New York Fed agreed to buy pieces of Davis Square III, TCW put in about $400 million of assets originated after 2004 that weren’t guaranteed by government-backed companies such as Freddie Mac. ‘Apples to Oranges’ While TCW was adding bonds made up of risky loans, its biggest mutual fund took a more ambivalent approach. TCW Total Return Bond Fund shrank its mortgage holdings not guaranteed by government-sponsored firms to 15.9 percent in July 2007 from 18.8 percent three months earlier, according to company filings. As early as August 2006, Gundlach was preparing to act on his prediction that U.S. home prices would continue their slide. He announced that TCW was putting together a $1.5 billion fund to invest in bad mortgages. Gundlach wouldn’t comment on Davis Square III and referred questions to Lucido, who said he was hindered from talking because he no longer had access to TCW’s files. Freeman, the TCW spokeswoman, said the bond fund, which beat 99 percent of competitors over the past five years, catered to individual investors and had different investment objectives than Davis Square III. Any comparison is “apples to oranges,” she said. She praised TCW’s performance in managing Davis Square III. “Through the worst credit environment in our lifetimes, this CDO is still performing,” she said. “It’s still paying interest to investors, and it hasn’t had any event of default, which is a credit to TCW’s skill in security selection.” ‘High Default Risk’ The CDO’s maturity date is 2039, so any declaration of success is premature, said Rutledge of R&R Consulting. Davis Square III continues to deteriorate as more U.S. mortgage borrowers quit paying their monthly bills. Fitch Ratings in February 2009 downgraded the safest class of Davis Square III to CCC, meaning it’s a “high default risk.” More than $16 billion of CDOs managed by TCW have defaulted, been liquidated or stopped paying some investors, according to RBS Securities Inc. TCW now finds itself defending Gundlach’s team at the same time it’s suing him for having “no understanding or respect for the obligations of a fiduciary,” according to a complaint filed Jan. 7 in Los Angeles Superior Court. Sex Toys In the suit, TCW accuses Gundlach and three other employees of stealing data on 24,000 clients and prospects, as well as proprietary trading information, to start their own firm. Lucido wasn’t named in the TCW complaint. TCW also said in its complaint that Gundlach, a former company director, kept marijuana and “12 sexual devices, 34 hardcore pornographic magazines, 17 hardcore sexually explicit DVDs and 19 hardcore sexually explicit videocassettes” in his two offices. Gundlach, now CEO of DoubleLine, denied the allegations that he stole client data or used proprietary information. He countersued in February, claiming TCW owed him as much as $1.25 billion in compensation. As for the drugs, porn and sex toys, Gundlach said in an interview with Bloomberg Markets in January that they were relics from a closed chapter in his life being used by TCW to damage his reputation. “It’s ancient stuff, like a box in an attic,” he said. Ellington, Duke A dispute over replacement collateral landed in New York Supreme Court in 2008. Hamburg-based HSH Nordbank AG, the world’s biggest shipping financier, said in a complaint that UBS AG had been “deliberately selecting inferior quality” assets for a synthetic CDO called North Street 2002-4. Doug Morris, a spokesman for Zurich-based UBS, declined to comment. Ellington Management, the asset-management firm founded by Vranos in Old Greenwich, Connecticut, was another manager that replaced collateral in CDOs insured by AIG. The firm bought $11.5 million of bonds backed by mortgages originated by Irvine, California-based New Century Financial Corp. at least two months after the subprime lender declared bankruptcy in April 2007, placing them in a CDO called Duke Funding VII. About $3.4 billion of the CDOs that ended up in Maiden Lane III were managed by Ellington. Their value had fallen by $1.9 billion. Steve Bruce, a spokesman for the firm, declined to comment. Tricadia Capital Tricadia Capital, the asset-management affiliate of New York-based Mariner Investment Group, also managed CDOs containing collateral that didn’t exist when they were created. One was TABS 2005-4, which bundled mostly subprime mortgages and was underwritten by Morgan Stanley in January 2006. AIG guaranteed $248.8 million of the CDO, which lost almost three- quarters of its value by the time it was bought by the New York Fed for Maiden Lane III. Tricadia told investors it might bet against bonds it put into CDOs -- even ones in which it owned equity stakes. In AIG’s Dec. 5, 2007, presentation, Cassano said the Financial Products unit had conducted “a highly selective review” of investment managers and their incentives and didn’t expect to make any payments on the insurance it wrote on the senior classes of subprime CDOs. “We are highly confident that we will have no realized losses on these portfolios during the life of these portfolios,” Cassano said. “Vintages within the subprime sector are key, and we do not have a lot of exposure in our portfolio to the ‘06 and ‘07 subprime issuance.’’ AIG underestimated the repercussions caused by asset managers trading collateral after CDOs were issued, said Gene Phillips, director of PF2 Securities Evaluations, an advisory firm in New York. ‘‘As it turns out, the ramifications were quite drastic,’’ Phillips said. To contact the reporters on this
story: Bob Ivry
in New York at bivry@bloomberg.net; Jody Shenn
in New York at jshenn@bloomberg.net.
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