Evening Headlines
Bloomberg:
- Goldman Sachs(GS), TCW Sued by Landesbank Over $37 Million in Losses From CDO. Goldman Sachs Group Inc. and TCW Group Inc. were sued by Landesbank Baden-Wuerttemberg over $37 million in losses from an investment in a collateralized debt obligation named Davis Square Funding VI. The CDO, for which Goldman was the placement agent and TCW the investment adviser, held 95 percent residential mortgage- backed securities, of which 33 percent were subprime and 46 percent were “midprime,” the German bank said in a complaint filed today in federal court in Manhattan. When Goldman sold the investments to a Luxembourg affiliate of LBBW in March 2006, they were represented as “safe, secure, and nearly risk free,” according to the complaint. At the same time, Goldman senior executives privately observed that “it was game over” for subprime lenders and were reducing their exposure to the mortgages, LBBW said. “Goldman knew at the highest levels of its organization that its representations to LBBW Luxemburg that the notes merited triple-A ratings and were high grade were blatantly false,” the Stuttgart-based bank said. “Goldman committed fraud and, or, was negligent in marketing and selling the notes to LBBW Luxemburg.” Moreover, Goldman was buying credit default swaps in case Davis Square VI and similar CDOs would fail and was also using TCW Group’s parent company, Societe Generale SA, to purchase insurance specifically against Davis Square’s failure, the bank said.
- BofA(BAC) Foreclosures May Prompt Servicer-Rating Cut, Moody's Says. Bank of America Corp., which delayed foreclosures last week to review affidavits it submitted to courts in 23 states, may have its top servicer-quality ratings cut, Moody’s Investors Service Inc. said. “Irregularities” in the bank’s process may delay home seizures, allow legal challenges to completed foreclosures and pose a “reputational risk,” Moody’s said in a statement today. The ratings company also cited “deterioration of the company’s collections, loss mitigation and timeline performance metrics.”
- Buffett's China-Gushing Optimism Sells Like Sex: William Pesek. The marriage of Buffett’s suddenly unbridled optimism and China’s perceived invulnerability is a fascinating milestone. Just two years after pushing a “buy American” campaign, Buffett is leaning toward a “buy Chinese” one. In reality, the Buffett gush-fest is a reminder of the precariousness of the global economy. It’s one in which the biggest economies and the savviest investors may be relying too much, too soon, on a developing nation.
- Emanuel Gets Earful in Chicago Listening Tour for Mayoral Run. Rahm Emanuel discovered today that coming home to Chicago isn’t always sweet. Rivals to the throne of retiring Mayor Richard M. Daley sent supporters to challenge the former White House chief of staff. Protesters jeered his role in President Barack Obama’s support for Wall Street banks. Black voters criticized him for what they said was the administration’s inability to help Chicago communities suffering from unemployment. Rahm Emanuel discovered today that coming home to Chicago isn’t always sweet. Rivals to the throne of retiring Mayor Richard M. Daley sent supporters to challenge the former White House chief of staff. Protesters jeered his role in President Barack Obama’s support for Wall Street banks. Black voters criticized him for what they said was the administration’s inability to help Chicago communities suffering from unemployment.
- Bernanke Calls on Lawmakers to Consider Rules on Limiting Federal Spending. Federal Reserve Chairman Ben S. Bernanke called on U.S. lawmakers to consider rules limiting federal spending, annual deficits or accumulated debt to curtail the risk of a fiscal crisis. “Well-designed rules can help promote improved fiscal performance,” Bernanke said today in a speech in Providence, Rhode Island. A rule “could provide an important signal to the public that the Congress is serious about achieving long-term fiscal sustainability, which itself would be good for confidence,” he said.
- Elpida Earnings Likely to Miss Forecast, CEO Says. Elpida Memory Inc., the world’s third-largest maker of computer-memory chips, will probably miss previous earnings projections as slowing personal-computer demand drives down chip prices, President Yukio Sakamoto said.
- MSCI China Index May Drop 15% in Fourth Quarter on Stimulus Exit, RBS Says. The MSCI China Index may fall 10 percent to 15 percent this quarter as the government focuses on structural reform instead of boosting the economy as growth moderates, Royal Bank of Scotland Group Plc said. “Beijing is increasingly aware of the side effects of its unprecedented stimulus measures, among which excess liquidity has to be one,” analysts led by Wendy Liu wrote in a report yesterday.
- Arthur Laffer: The Bill Gates Income Tax. If Washington's most famous billionaires are really worried about their state's finances, they'd write personal checks to the government and leave everyone else alone.
- Citi(C) Critic Mayo Questions Bank Strategy After Meeting. Citigroup failed to silence prominent analyst Mike Mayo in a much-publicized meeting between the bank's senior executives and its long-time critic.
- iPad Adoption Rate Fastest Ever, Passing DVD Player. Apple’s(AAPL) iPad sold three million units in the first 80 days after its April release and its current sales rate is about 4.5 million units per quarter, according to Bernstein Research. This sales rate is blowing past the one million units the iPhone sold in its first quarter and the 350,000 units sold in the first year by the DVD player, the most quickly adopted non-phone electronic product.
- Stung by China, Japan Turns to Recycling for Rare Earth.
Business Insider:
Zero Hedge:
NY Times:
Forbes:
- Billionaire Calls Flash Crash a Regulatory Failure. Ron Baron, the mutual fund magnate, says smart guys will always get around the rules. Baron Capital founder Ron Baron says the flash crash was caused by a crazy, fragmented market.
- US Plans Law Enforcement 'Surge' On Trains. US authorities plan a law enforcement surge this week along Amtrak routes, an exercise called operation RailSafe, and the heads of the country's biggest mass transit systems were briefed today on the possible terror threat, all part of what is being called an abundance of caution. Amtrak is holding a high-security exercise on Friday in which uniformed officers will be a visible presence on national transit routes.
- Paul McCulley Discusses PIMCO's Cyclical Outlook. Developed economies must spend an extended period undergoing balance sheet repair. Also, we are confident that monetary policy in the developed countries will remain extraordinarily accommodative for a very extended period. The bottom line for the U.S. is a growth trajectory so slow you’d nearly call it stalled, in the context of a huge output gap, implying further disinflation from an already too-low level for inflation. We are living in a world transforming to greater influence from the emerging countries, with retrenchment in the developed countries. And as strong as many of the emerging markets are, they are still tethered to the developed markets by strong global trade linkages.
- Who's Really to Blame for Monster Deficits? Between 2011 and 2018, Obama would spend $4.9 trillion more than Bush had planned to. Keep in mind that all this extra spending is after the economic stimulus has been almost entirely exhausted. In other words, if Obama had simply kept Bush's spending policies in place, federal deficits over the next eight years would be 60 percent lower. In 2018, we'd have a deficit of just $188 billion, instead of the projected $996 billion under Obama's budget. So while Bush no doubt shares the blame for the dismal budget outlook, the majority of the blame belongs with Obama for putting the government on a far higher spending path.
- Analog Faces Slowdown. Don't look now, but analog is slowing. FBR has lowered its estimates for Linear Technology Corp.(LLTC) and Maxim Integrated Products Inc.(MXIM) And MaxLinear Inc. lowered its sales forecast. ''Recent checks with Asian distributors suggest 4Q analog backlog is falling, and that 4Q '10 distributor shipments may track flat to slightly down sequentially, worse than Street estimates,'' said Craig Berger, an analyst with FBR, in a report. ''We hear PC-related analog demand is weaker than expected as supply chain participants reduce chip inventories for Intel's outgoing Calpella notebook platform, and before Sandybridge notebooks ramp in 1Q '11. While industrial shipments are still robust, we see cracks starting to form there, too.''
- US Regulators May Need Help Policing Swaps Market. U.S. market regulators may need help supervising the dozens of new entities that will serve as trading venues for the $615 trillion over-the-counter derivatives market, regulators and industry officials said on Monday.
- U.S. "Flash Crash" Report Ignores Research - Nanex. Eric Hunsader, a software maven who coined the phrase "quote-stuffing" and created graphics to show how alleged market manipulation worked, said regulators dismissed his extensive research in last week's "flash crash" report.The findings by the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission said a sale of Chicago Mercantile Exchange stock futures worth $4.1 billion helped trigger the meltdown in U.S. stock prices on May 6 and laid the blame on a lack of liquidity in markets that day. Backers of high-frequency trading, who say they have been unduly blamed for the market's gyrations on May 6, lauded the regulators' findings. But Hunsader said regulators largely ignored his "quote-stuffing" theory which argued that high-frequency traders had contributed to the crash by flooding the market with so many orders that it delayed the posting of prices to the consolidated quote system. "It just seemed to me too much ink was devoted to try to discredit theories without any evidence, without any basis, other than just, 'We looked at it, we talked to these people, and now, we dismissed it,'" Hunsader said. "Obviously they didn't follow up. I felt everything I sent to them went into a black hole," said Hunsader, who runs Nanex, a four-person data provider shop in Chicago.
- Mosaic(MOS) Profit Nearly Triples, But Misses Street. Mosaic Co (MOS) said on Monday its quarterly profit nearly tripled as demand for its fertilizers surged, although results missed expectations and the company's shares fell.
- Call for New Global Currencies Deal. The world’s leading countries should agree a new currency pact to help rebalance the global economy, a leading association of financial institutions has urged. The Institute of International Finance, which represents more than 420 of the world’s leading banks and finance houses, warned on Monday that a lack of such co-ordinated rebalancing could lead to more protectionism. Charles Dallara, IIF managing director, said: “A core group of the world’s leading economies need to come together and hammer out an understanding.”
- EU Nations Win a Year's Reprieve on State Aid. European governments will be allowed to provide soft loans and other concessionary support to their banking and industrial sectors for one more year because of the lingering effects of financial crisis, according Europe’s top competition regulator.
- World's Powers Must Head Off Threat of Currency War. The world’s major economic powers must do more to head off the prospect of a global currency war, a body representing the world’s financial institutions has warned.
- No New Bail-Out for UK Banks, Says Chancellor George Osborne. The prospect of a second round of bailouts for the UK's banks has been dismissed by Chancellor George Osborne and the industry's main trade body.
- France won't join the U.S. to push for Chinese government currency policy reforms at the G20 summit in Seoul next month, citing the French ambassador to China, Herve Ladsous.
- Chinese Property Tax on 'Hot' Cities First. "Overheated" mainland cities are likely to be the first to be hit with a property tax in a bid to cool the sizzling real estate sector. Beijing announced a second round of tightening measures last Wednesday to curb speculation and stabilize home prices. Shanghai and Shenzhen have already received approval to introduce an annual property tax of 0.3 to 0.4 percent of a home's market value as part of a pilot scheme, said Yang Hongxu, an analyst at Shanghai E-house China Research, citing market sources. Nomura Holdings said authorities may consider introducing a property tax in cities such as Beijing, Shanghai, Shenzhen and Hangzhou, as well as "fully" enforcing the land appreciation tax. Such measures would pull down house prices by 5 to 10 percent by the end of next year, wrote Nomura analysts Alvin Wong and Sunny Tam.
- None of note
- Asian equity indices are -.50% to +.25% on average.
- Asia Ex-Japan Investment Grade CDS Index 116.0 +1.5 basis points.
- Asia Pacific Sovereign CDS Index 107.0 -2.5 basis points.
- S&P 500 futures -.13%.
- NASDAQ 100 futures -.03%.
Earnings of Note
Company/Estimate
- (WWW)/.66
- (DMND)/.28
- (YUM)/.73
10:00 am EST
- The ISM Non-Manufacturing Composite for September is estimated to rise to 52.0 versus 51.5 in August.
- None of note
- The weekly retail sales reports, weekly ABC Consumer Confidence report, Citi Biotech Day, Johnson Rice Energy Conference, William Blair Growth Stock Conference, (IRM) Investor Day, (FISV) Investor Conference and the (LZ) Analyst Meeting could also impact trading today.
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