North American Investment Grade CDS Index 85.80 bps -4.03%
European Financial Sector CDS Index 84.34 bps -2.81%
Western Europe Sovereign Debt CDS Index 90.83 bps -3.20%
Emerging Market CDS Index 207.09 bps -1.09%
2-Year Swap Spread 15.0 bps unch.
TED Spread 17.0 +1 bp
Economic Gauges:
3-Month T-Bill Yield .14% -1 bp
Yield Curve 279.0 bps -3 bps
China Import Iron Ore Spot $180.80/Metric Tonne +.78%
Citi US Economic Surprise Index +23.50 -.3 point
10-Year TIPS Spread 2.35% +2 bp
Overseas Futures:
Nikkei Futures: Indicating +120 open in Japan
DAX Futures: Indicating +5 open in Germany
Portfolio:
Higher: On gains in my Retail, Medical, Financial and Tech long positions
Disclosed Trades: Added (IWM)/(QQQQ) hedges, added to my (EEM) short
Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is bullish as equities trade at session highs despite some weakness in market leading stocks and ongoing worries over Greece. On the positive side, Gaming, Homebuilding, Construction, Hospital, Oil Service, Energy, Oil Tanker and Bank stocks are especially strong, rising 2.0%+. Small-Caps are outperforming. (XLF) and (IYR) have outperformed throughout most of the day. The euro is trading near session lows and continues to trade poorly. The decline in most cds indices is a large positive. Weekly retail sales rose +3.0% this week versus a +3.3% gain the prior week and down from a +3.9% increase two weeks ago. On the negative side, Gold, I-Bank, Computer Service, Computer Hardware and Drug shares are falling on the day. The Greece 10-year/bund spread is gaining +1.47% to 467 basis points. The Greece sovereign cds is rising another +.25% today. Investor angst gauges are still registering near-term complacency. Tech shares are underperforming on (IBM) and ahead of (AAPL). While I expect a very good quarter from (AAPL), the stock's technical set-up has been better ahead of past earnings releases. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, profit-taking and china hard-landing fears.
Credit Markets in Europe Snap 3-Day Drop as Optimism Improves. Credit markets in Europe rallied the most this year after German investor confidence rose and Goldman Sachs Group Inc.’s profit beat estimates. Credit-default swaps on the Markit iTraxx Crossover Index of 50 companies with mostly junk ratings fell 19 basis points to 409 as of 5:10 p.m. in London, according to Markit Group Ltd. The drop was the biggest since Dec. 31, according to CMA DataVision, and signalled improving perceptions of credit quality.
Goldman Donations to Obama Campaign Totaled Nearly $1 Million. U.S. Senate candidate Alexi Giannoulias pushed his Republican opponent in Illinois to give back donations from Goldman Sachs Group Inc. without saying whether President Barack Obama should return almost $1 million that bank employees contributed to his White House bid. Obama, a political mentor and basketball buddy to Giannoulias, received the money from employees and their family members, making Goldman Sachs second only to the University of California as his biggest single source for donors in 2007 and 2008, according to the Center for Responsive Politics. The Securities and Exchange Commission’s fraud lawsuit against Goldman Sachs has politicians gauging the fallout from taking donations from the bank. “This would be a lot more interesting if Wall Street banks, joined by Mark Kirk, weren’t fighting tooth and nail against the needed reforms the administration is advocating for,” Hari Sevugan, Democratic National Committee spokesman, said in a statement. Sevugan didn’t respond to an e-mail query when asked whether Obama plans to return money from Goldman Sachs employees. Goldman Sachs and its employees and family members gave $5.9 million to candidates in the 2007-2008 election cycle, according to the Washington-based Center for Responsive Politics. Three-quarters of that went to Democrats, the non- partisan group said. Wall Street provided three of Obama’s seven biggest sources of contributors for his presidential bid. In 2007 and 2008, Goldman Sachs employees and family members gave him $994,795, Citigroup Inc. $701,290, and JPMorgan Chase & Co. $695,132. Kathleen Strand, a Giannoulias spokeswoman, declined to provide a yes or no response when asked whether Obama should give money back to Goldman employees.
Goldman Profit Beats Estimates as Firm Battles SEC. Goldman Sachs Group Inc., facing a fraud lawsuit from U.S. regulators, reported first-quarter earnings that surpassed analysts’ estimates on record fixed- income trading revenue. Net income almost doubled to $3.46 billion, or $5.59 a share, from $1.81 billion, or $3.39, a year earlier, the New York-based bank said today in a statement. The average estimate of 23 analysts surveyed by Bloomberg was for $4.14 per share. Predictions ranged from $3.33 to $5.97. “Goldman is continuing to take market share, and I think that’s the key move for them coming out of the financial crisis,” Jason Tyler, senior vice president at Ariel Investment LLC, which manages $5 billion, said in a Bloomberg Television interview. “Goldman is a clear winner as people are trying to figure out who they are going to do business with.” Equities-trading revenue rose 18 percent to $2.35 billion from $2 billion a year earlier, Goldman Sachs said. Gains from principal investments, which includes the company’s stakes in Industrial & Commercial Bank of China Ltd. as well as real estate and other companies, were $510 million compared with a net loss of $1.41 billion in the first quarter of 2009. Investment-banking revenue climbed 44 percent to $1.18 billion from $823 million last year. Within that, fees from financial advice fell 12 percent to $464 million from $527 million and equity-underwriting revenue surged to $371 million from $48 million. Debt underwriting generated $349 million compared with $248 million a year earlier. Compensation and benefits, the firm’s biggest expense, increased 17 percent to $5.49 billion in the quarter, or 43 percent of the firm’s overall revenue. The cost compared with $4.71 billion in the first quarter of 2009, when the firm set aside 50 percent of revenue.
IMF Said to Propose G-20 Bank Tax to Pay for Bailouts. The International Monetary Fund will recommend levies on financial companies’ non-deposit liabilities or on profits and compensation to pay for bailouts, said officials with knowledge of the proposal to Group of 20 nations.
Greek 3-Month Bill Yield Doubles on Default Concern. Greece’s borrowing costs more than doubled at an auction of 1.95 billion euros ($2.6 billion) of three-month bills amid concern the nation will default unless it taps a bailout package brokered by the European Union. Greece sold the 13-week securities today to yield 3.65 percent, compared with 1.67 percent at a sale of similar debt on Jan. 19, according to the Athens-based Public Debt Management Agency.
IMF Says Government Debt Poses Biggest Risk to Growth. The International Monetary Fund cautioned that rising government debt has replaced financial industry stress as the biggest threat to the global economy and cut its estimate for asset writedowns by 19 percent. Governments need “credible, medium- term” plans to reduce deficits and some nations need to do more to revive the flow of credit and boost growth. “The deterioration of fiscal balances and the rapid accumulation of public debt have altered the global risk profile,” the IMF said. “Vulnerabilities now increasingly emanate from concerns over the sustainability of governments’ balance sheets.” “Greece is a wake-up call,” Jose Vinals, director of the IMF’s monetary and capital markets department, told reporters at a briefing in Washington yesterday. “In all the other countries, which fortunately are in a better situation, what we are saying is ‘do not let the financial situation get out of hand and undertake the necessary measures precisely to remain on the safe side.’”
Web Traffic, Video Meetings Surge as Flights Grounded. Stranded flyers created a surge in demand for travel industry Web sites and remote conferencing services as a shutdown of many flights in Europe continued through a sixth day. Visits to aviation industry sites as a proportion of U.K. Internet traffic have doubled since Iceland’s Eyjafjallajökull volcano erupted April 14, according to Experian Plc.’s Hitwise Web-tracking service.
Wall Street Journal:
Is China Recovery on the Bubble? The global economic recovery has drawn support from a swift rebound in China. Now, investors and economists wonder whether a bursting Chinese property bubble could put China's economy in a bind. Over the past week, China's cabinet has announced measures aimed at cracking down on property speculators, including tougher down-payment requirements for second and third homes. This comes after China reported an 11.7% rise in urban home prices last month from a year earlier, its fastest gain in five years. "This is the critical policy point that finally cracks the Chinese property market," declared Morgan Stanley China strategist Jerry Lou.
Goldman(GS) Working Hard to Sway Regulatory-Reform Outcome. Both Goldman(GS) and JP Morgan Chase(JPM) have been at the forefront of the lobbying efforts to revise major parts of the bill, including its provisions to curb so-called proprietary trading and force firms to sell stakes in hedge funds and private equity funds. FOX Business has learned that JPMorgan has drawn up contingency plans to sell its massive hedge fund, Highbridge Capital, which it purchased in 2004 for about $1 billion. The fund manages some $21 billion in assets. JP Morgan also owns one of the largest private equity arms in the financial system that manages $15 billion in assets. It has contingency plans to sell that as well.
Hedge Fund Manager Bill Laggner: Why We're Still Short Goldman. Bearing Asset Management has been short Goldman Sachs since December and they're staying short. Goldman stock tanked on Friday in the aftermath of the SEC's fraud case against Goldman, but Bill Laggner stayed short and he's not budging anytime soon. Even though this morning, Goldman just utterly smashed earnings estimates. "We are short and we will stay short," he told us. "We are in the very early stages of tearing down the greatest fraud ever perpetrated on the American people." When more details emerge, he believes, potential Goldman clients will uncover more about Goldman's trading against and withholding valuable information from clients. In light of those new details, the stock price will go down. "Goldman is nothing more than a glorified hedge fund taking massive bets with taxpayer subsidies," he says. "As more market participants realize this conflict of interest the business should contract rapidly."
Clearly, OPEC Lost Control of Oil in March. Non-OPEC global oil supply increased in March and is now expected to average 51.53 million barrels per day (mb/d) for 2010, which is a 0.50 mb/d increase over 2009 according to Hellenic Shipping News (HSN). It is also an increase of 0.10 mb/d to the 2010 forecast from just a month ago.
zerohedge:
Dodd Financial Reform Bill: All Holes and No Cheese. In a letter last week to Senate majority leader Harry Reid and minority leader Mitch McConnell, former SEC Chief Accountant Lynn Turner, former Treasury Secretary Robert Reich, former Lehman Brothers Vice Chair Peter Solomon, former S&L investigator Bill Black, former Senate Banking Committee Chief Economist Rob Johnson, economists Dean Baker, Barry Eichengreen and others pointed out that Dodd's proposed financial reform legislation wouldn't have prevented the current crisis ... and won't prevent the next crisis. Dodd himself has admitted that his bill "will not stop the next crisis from coming". In fact, the bill is wholly ineffective, failing to address the core things which need to be done to stabilize the economy. See this, this and this. Moreover, as Democratic Congressman Brad Sherman - a senior member of the House Financial Services Committee and a certified public accountant - points out: The Dodd bill has unlimited executive bailout authority. That’s something Wall Street desperately wants but doesn’t dare ask for. The bill contains permanent, unlimited bailout authority. And as Arthur Delaney notes, the bill is riddled with carve outs purchased by lobbyists: "Obtaining a carve-out isn't rocket science," said a Republican financial services lobbyist. "Just give Chairman Dodd [D-Conn.] and Chuck Schumer [D-N.Y.] a shitload of money."
Greece Update: Another Day, Another Record: 10 Year Hits 484 BPS. Today's 13 week Bill auction has done exactly nothing to tame Greek default spirits: case in point, the 10 Year has just surged to another all time record high of 484 bps spread to Bunds. Notably, and as we expected, just as the Gold selloff last week was predicated on Paulson concerns, the hedge fund manager's major holding in GGBs may well be the reason for increased volatility in Greek bonds. G-Pap now has no choice but to activate the US taxpayer bailout. We are confident this will be spun favorably by the media. We only wonder if as soon-to-be DIP lenders, Americans will now have first dibs on the best rooms at Athens hotels.
One Market Participant Holds Over 40% of LME Nickel Shorts. One market participant is holding more than 40% of the short positions in nickel futures on the London Metal Exchange, according to LME data. This follows the revelation late last month that another market participant is holding between 50% and 80% of LME stock warrants and cash contracts.
LA Times:
Venture Funding Up 12% in First Quarter. Investors poured $4.7 billion into 597 financing deals, according to Dow Jones VentureSource. In Southern California, the number of deals stayed flat, but the value jumped 22% to $693 million.
Accuracy In Media:
Obama's Wall Street Bill Lets Crooks Escape. Diamond, who has emerged as a major critic of the unregulated hedge fund industry, says he was not surprised that the Securities and Exchange Commission (SEC) named hedge fund short-seller John Paulson as a key player in the Goldman Sachs scheme to defraud investors but failed to indict him. Diamond says that Paulson is being let off the hook because he is a member of the most powerful special interest group working the corridors of power in Washington, D.C.--the Managed Funds Association (MFA). He says the major media are afraid of taking on the MFA, which calls itself "the voice of the global alternative investment industry," because of its tremendous financial clout. "The SEC charges against Goldman Sachs are a ruse, a ploy, and a smokescreen to get the Dodd financial reform passed," he said. The bill, he argues, fails to hold the multibillion dollar hedge fund short sellers accountable for their illegal market manipulations.
Financial Times:
Reserve Bank of India. The early stages of inflation, as Jens Parsson pointed out in “Dying of Money,” can be a really fun time. Money expands, stock markets boom and state spending rises as governments fund deficits without drama. People start to feel well off, amid generally stable prices. That happy place is where India has been for the past few months. Asia’s third-largest economy has delivered one of the world’s most balanced recoveries, spread evenly over consumption, investment and exports. But now, notes the Reserve Bank of India, an ominous transition is under way: “inflationary pressures” triggered by the weakest monsoon in almost 40 years, are developing into “a wider inflationary process”. The year-on-year rise in wholesale prices accelerated from 0.5 per cent in September to 9.9 per cent in March, well ahead of the bank’s baseline projection of 8.5 per cent.
Iran Gives Weapons, Funds to Help Lebanese Hezbollah Re-Arm. Iran has provided weapons and as much as $200 million a year to help the Lebanese militant group Hezbollah re-arm itself to levels beyond those in 2006, when the group waged a war with Israel, the Pentagon said. The unclassified review of Iran’s military power, the first submitted under legislation passed last year, cites the Persian Gulf nation’s “longstanding relationship” with Hezbollah, which the U.S. and Israel consider a terrorist group. Iran views Hezbollah “as an essential partner for advancing its regional policy objectives,” the Pentagon said in the 12-page account, submitted to congressional committees yesterday. The report also examines Iran’s build-up of its navy and air forces, and its ties with China, Russia and Venezuela.
JPMorgan(JPM) Unit Subpoenaed in U.S. Investigation of Tax-Lien Bids. A JPMorgan Chase & Co. subsidiary is among at least three companies being investigated as part of a U.S. Justice Department antitrust probe of bidding at municipal tax-lien auctions in New Jersey. JPMorgan’s Xspand unit and Vienna, Virginia-based Mooring Tax Asset Group received grand jury subpoenas last year, according to an August prospectus for New York City tax-lien bonds that are serviced by the firms.
BofA-Merrill(BAC) Tops Credit Suisse List of 'CDO Litigation Risk'. Bank of America Corp. and Merrill Lynch & Co. led Credit Suisse AG’s “CDO litigation risk” list after offering $16.85 billion of collateralized debt obligations similar to the one that drew a U.S. fraud suit against Goldman Sachs Group Inc. The tally of lead underwriters of CDOs with “salient characteristics” of the disputed deal between 2005 and 2008 may help investors gauge the risk that lawsuits will spread to other firms, Credit Suisse said in a report yesterday. Bank of America, the largest U.S. bank, acquired New York-based Merrill Lynch in January 2009. “Problems of this sort are rarely confined to one institution,” Credit Suisse said. “The dot-com era shows us that in the wake of a crisis, business practices which were considered normal at the time can look very much worse with the benefit of hindsight and in a legal setting.”
China May Slash U.S. Chicken Imports by 55%, USDA Agency Says. China may slash imports of U.S. chicken by 55 percent this year, as the country institutes anti- dumping tariffs on the meat, a unit of the U.S. Department of Agriculture said. China was the third-largest buyer of U.S. poultry last year, after Russia and Mexico. The country is instituting anti- dumping duties on U.S. poultry, after a preliminary investigation showed producers selling at below-market prices, according to the report.
Lilly's(LLY) Health-Care Costs Set Stage for Drugmakers. Eli Lilly & Co. said costs for Barack Obama’s health-care law were 12 times higher than one analyst estimated. That result may be the first of such surprises from pharmaceutical companies this earnings season. The Indianapolis-based drugmaker said first-quarter earnings were trimmed by 12 cents a share because of the new rules signed into law last month. Seamus Fernandez, an analyst at Leerink Swann & Co., had estimated a potential reduction of 1 to 2 cents a share in an April 15 research note. Now analysts may revise projections for Bristol-Myers Squibb Co., Pfizer Inc. and other drugmakers yet to report first-quarter results, anticipating a larger-than-expected impact from the health-care law. Measures in the bill expanded the number of hospitals serving low-income populations eligible for lower prices on medicines, boosted discounts to Medicaid and made subsidies for retirees’ prescriptions taxable, Lilly said today.
Bain Capital's Sankaty Said to Raise $900 Million for Debt Fund. Sankaty Advisors LLC, Bain Capital LLC’s debt-investment affiliate, has raised about $900 million to lend to medium-sized companies as capital for that sector remains restricted, according to two people familiar with the situation.
Congress May Hold Wall Street Liable for Municipal-Swap Deals. Wall Street banks would be held responsible for steering local governments into the kind of derivative deals that backfired amid the financial crisis, under a bill introduced in the U.S. Senate. The legislation by Senator Blanche Lincoln, an Arkansas Democrat who chairs the agriculture committee, would impose a fiduciary duty on banks entering into interest-rate swaps with cities, towns and other municipal issuers. Lincoln said the provision is intended to ensure that banks don’t take advantage of local governments.
Saudis Tighten China Energy Ties to Reduce U.S. Dependence. China, the world’s second-largest oil consumer, and Saudi Arabia, holder of about a fifth of global crude reserves, are forging ever closer ties as the Persian Gulf kingdom responds to a Chinese drive to feed its rising energy needs. China in November overtook the U.S. as the main buyer of Saudi oil, and Saudi Arabian Oil Co. and Saudi Basic Industries Corp. are investing in refinery and petrochemicals projects in China. The partnership between Saudi Arabia and China is part of a broader strategy by the world’s largest oil exporter to tap Asian markets and extend global influence. It also helps Saudi Arabia reduce reliance on the U.S., which since World War II has protected Saudi security in return for stable oil supplies, said Ben Simpfendorfer, Hong Kong-based chief China economist at the Royal Bank of Scotland Plc. “China’s rise has provided Saudi Arabia with an excuse to knock on Washington’s door and to say, you are not our only partner,” he said. Since Saudi Arabia and China established diplomatic ties in 1990, two-way trade has grown to more than $40 billion in 2008 from $290 million. Oil lies at the heart of the relationship. With about a fifth of China’s crude imports now coming from Saudi Arabia, or about 1 million barrels a day compared with 455,000 barrels a day in 2005, the kingdom is investing to expand Chinese capacity for refining of Saudi heavy crude. China’s need for oil is prompting it to seek greater influence in the Middle East, said Shi Yinhong, a professor of international relations at Renmin University in Beijing. Increasing economic ties to Saudi Arabia “will play some role in gradually eroding American preponderance over that country.
Calpers' Board Approves Policy Shift to Protect Rent Control. The California Public Employees’ Retirement System, the largest U.S. public pension, said it will stop investing in real-estate projects that would eliminate rent-regulated apartments, such as New York City’s Stuyvesant Town-Peter Cooper Village. The pension fund’s investment committee approved the policy change today. The new policy states that Calpers cannot invest in projects that would eliminate rent-controlled apartments or convert them to market rates. Calpers wrote off a $500 million investment with Tishman Speyer Properties LP and BlackRock Inc. after the partnership’s plan to raise rents at Manhattan’s largest apartment complex failed to generate enough income to pay the $3 billion mortgage. The group paid $5.4 billion for Stuyvesant Town-Peter Cooper Village in 2006. The policy change is intended to head off a more restrictive proposal making its way through the California Legislature. That bill might prevent the fund from investing in affordable housing projects, said Brad Pacheco, a Calpers spokesman. Tenant-rights advocates sought the change after Calpers invested $100 million in a project in East Palo Alto, a low- income city in Silicon Valley. Tenants there complained to the Calpers board that if vacancy rates increase enough, the owners would be allowed to end rent-control rules.
Wall Street Journal:
Greece Needs More Aid, Bank Official Says. Greece may require financial assistance of as much as €80 billion ($107.92 billion) to escape its debt crisis and avoid default, Bundesbank President Axel Weber told a group of German lawmakers Monday, according to a person familiar with the matter. The estimate, considerably more than the €45 billion that European countries and the International Monetary Fund are currently prepared to extend Greece this year if it needs a bailout, suggests that a rescue of the country may come in several stages and reach beyond 2010. Mr. Weber, a member of the European Central Bank's governing council and a leading candidate to succeed Jean-Claude Trichet as ECB president next year, told the legislators that Greece's situation was worsening and that "the numbers are changing all the time," according to the person. Mr. Weber's comments will likely fuel a debate in Germany and elsewhere in Europe over the wisdom of extending heavily indebted Greece a bailout without a fuller understanding of the country's long-term capital needs. If Greece does receive a bailout, its access to capital markets would likely be severely curtailed, leaving it dependent on aid for the foreseeable future, economists say. The Greek economy is under severe pressure due to austerity measures aimed at curbing government spending to bring down the deficit. Athens, which has said its total borrowing needs this year are in the range of €50 billion to €55 billion, is expected need a similar amount in 2011 and possibly more in 2012. Greece's entire debt totals more than 110% of gross domestic product and its budget deficit was about 13% of GDP last year.
Senators Seek Documents on Fort Hood Suspects. A pair of senators issued subpoenas to the Pentagon and the Justice Department Monday seeking information related to suspected Fort Hood shooter Maj. Nidal Hasan, the latest chapter in a tug-of-war over the government's investigation into the November shooting spree. Sen. Joseph Lieberman (I., Conn.) and Sen. Susan Collins (R., Maine), the chairman and ranking member of the Senate Committee on Homeland Security and Governmental Affairs, gave the Obama administration until Apr. 27 to provide the requested documents or face a vote by the full panel on seeking a court order for release of the information. "The committee wants to know what information the government had about Maj. Hasan before the attack and what steps the government took or failed to take before he turned violent," said Leslie Phillips, communications director for the committee. The senators asked the Defense Department to hand over Maj. Hasan's personnel file, performance evaluations and a confidential annex to a January report issued by the Pentagon on the Fort Hood shootings, in which 13 people were killed at the Army base in central Texas. The senators also asked the departments of Justice and Defense for information regarding Maj. Hasan's communications with "known or suspected terrorists," including his email exchange with U.S.-born radical cleric Anwar al-Awlaki in 2008 and 2009. Investigators say that the email exchange helped to radicalize Maj. Hasan, an Army psychiatrist. Mr. Awlaki, currently believed to be hiding in Yemen, also demanded public disclosure of the email exchange in a speech last month. His ties to Maj. Hasan and public cheerleading for the shootings catapulted the 38-year-old preacher to international notoriety late last year.
What the Committee Knew. The 2007 mortgage deal that set off controversy at Goldman Sachs Group Inc.(GS) was quickly approved by a group of roughly a dozen senior executives in a routine meeting in a drab conference room, according to people familiar with the matter. That group of senior-level executives—which included those helping to manage Goldman's mortgage, credit and legal operations—has surfaced as an important participant in the Securities and Exchange Commission's securities-fraud case against Goldman, which has rocked the firm and Wall Street.
An Economy of Liars. When government and business collude, it's called crony capitalism. Expect more of this from the financial reforms contemplated in Washington.
Fannie and Freddie Amnesia. Taxpayers are on the hook for about $400 billion, partly because Sen. Obama helped to block reform. Now that nearly all the TARP funds used to bail out Wall Street banks have been repaid, the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac stand out as the source of the greatest taxpayer losses. The Congressional Budget Office has estimated that, in the wake of the housing bubble and the unprecedented deflation in housing values that resulted, the government's cost to bail out Fannie and Freddie will eventually reach $381 billion. That estimate may be too optimistic.
CNBC:
Is Much Tighter Hedge Fund Oversight Ahead? So far, hedge funds have been able to avoid scrutiny in the wake of the financial crisis. But that may be about to change. So says author Stephen Gandel in an article he penned for Time magazine. Years from now the fraud charges facing Goldman Sachs will likely be long forgotten – but their legacy may live on – in the form on increased regulations – especially for hedge funds, according to Gandel.
Why Wall Street Likes the Dodd Bill. President Obama castigated Senate Republicans last week for opposing Sen. Chris Dodd's Wall Street "reform bill." Democrats say Republicans' main argument — that the bill won't prevent future bailouts — is false. The bill itself, though, is irrefutable evidence that the Republicans are dead on.
LA Times:
Jerry Brown Seeks to Force Moody's(MCO) to Release Evidence of Role in Housing Meltdown. The state attorney general wants Moody's to respond to a subpoena in a probe of why the firm gave glowing ratings to shaky securities. Moody's says he's looking for documents that don't exist. California Atty. Gen. Jerry Brown said Monday that he was seeking a court order to force Moody's Investors Service to comply with a subpoena, claiming that the credit rating company was withholding evidence of its role in the housing meltdown and recession. The subpoena from September is part of an investigation into why Moody's gave glowing ratings to shaky securities backed by subprime mortgages. But Brown accused the firm's lawyers of stonewalling and said that in conversations with his office they had called the subpoena "a waste of time." Brown said the lawyers had refused to provide "complete responses" to questions. In a fiery press conference Monday, the attorney general accused Moody's of "immaculate deception," saying that the firm had "thumbed their nose at the people of California" while trying to cover up "behavior that was completely unethical and in many cases illegal." "If Moody's has nothing to hide, then why are they hiding?" said Brown, a gubernatorial candidate this year. "Come out from your legal obfuscation and meet us."
Washington Post:
Rivals Say Goldman(GS) Customers are Taking a Back Seat. One former hedge fund manager said that when he read the headline about Goldman Sachs being charged with fraud he thought, "It's about time." But when he read the details of the case, he said he thought, "That's it?" Among many financial executives, there is little love lost for the powerful Goldman Sachs, which has been at the center of controversy over such things as bundling subprime mortgages, trading oil futures, and engineering Greek currency transactions. Although the positions taken by Goldman's own trading desk aren't public, many rival traders and fund managers say Goldman frequently bets against the very securities it is promoting to customers. That might be perfectly legal -- as well as common in the financial-services business -- given the multi-faceted nature of investment banks, which underwrite and market securities, analyze them and trade on their own accounts. But it makes some money managers uncomfortable, though few of them wanted to be quoted by name given Goldman's powerful position in marketing and trading securities. "Whether or not it's a criminal case, this underscores the problem with modern investment banks," said one fund manager and frequent short seller. "They have become giant hedge funds, and the interests of their clients are secondary."
Washington Times:
Big Banks: Too Big for Congress to Handle? Next crisis may loom as both parties bicker. Both Republicans and Democrats claim they want to prevent taxpayers from ever again having to bail out Wall Street goliaths in a crisis, but many analysts question whether either parties' reforms would do the job while the surest way to prevent future bailouts — breaking up the "too big to fail" banks — is not an option in Congress. Giants like Fannie Mae, JP Morgan Chase, Citigroup, and American International Group possess enormous power over governments and the economy by virtue of their huge balance sheets of up to $3 trillion and their financial ties with markets and businesses in every corner of the globe. The biggest banks got even bigger as a result of mergers arranged during the 2008 crisis, even as institutions less than half their size like Lehman Brothers proved capable of bringing down the entire world economy and decimating small nations like Iceland the Ireland — forcing steep spending cuts and tax increases — when they fell into bankruptcy.
Rasmussen Reports:
Generic Congressional Ballot: Republicans 46%, Democrats 36%. Republican candidates now hold a 10-point lead over Democrats in the latest edition of the Generic Congressional Ballot, tying the GOP's high for the year recorded the second week in March and their biggest lead in nearly three years of weekly tracking. A new Rasmussen Reports national telephone survey finds that 46% of likely U.S. voters would vote for their district's Republican congressional candidate, while 36% would opt for his or her Democratic opponent.
Politico:
Goldman Sachs(GS) Taps Ex-W.H. Counsel. Goldman Sachs is launching an aggressive response to its political and legal challenges with an unlikely ally at its side — President Barack Obama’s former White House counsel, Gregory Craig. The beleaguered Wall Street bank hired Craig — now in private practice at Skadden, Arps, Slate, Meagher & Flom — in recent weeks to help in navigate the halls of power in Washington, a source familiar with the firm told POLITICO. “He is clearly an attorney of eminence and has a deep understanding of the legal process and the world of Washington,” the source said. “And those are important worlds for everybody in finance right now.” They’re particularly important for Goldman.
Reuters:
US Nears Decision on China Currency Probe. The U.S. Commerce Department could decide this week whether to launch a groundbreaking investigation into charges China is subsidizing exports of an aluminum product by undervaluing its currency, a government official said on Monday.
Financial Times:
Panasonic Boosts 3D TV Production. Panasonic is increasing its production of 3D plasma television panels after US demand for 3D sets exceeded its expectations when they went on sale in March. “We’ve had a very strong reaction,” Hirotoshi Uehara, the head of Panasonic’s TV business told the Financial Times. “Our plasma panel factory is at full capacity but we’ve increased 3D panel production by 30 per cent compared to our original plan.”
AIG(AIG) Eyes Action on Goldman(GS) Over CDOs.AIG, the US government-controlled insurer, is considering pursuing Goldman Sachs over losses incurred on $6bn of insurance deals on mortgage-backed securities similar to the one that led to fraud charges against the US bank. AIG’s move over the deals that caused it a loss of about $2bn is a sign that Friday’s decision by the Securities and Exchange Commission to file civil fraud charges against Goldman could spark actions from investors who lost money on mortgage-backed securities. If AIG and others discover that their transactions had disclosure issues similar to those alleged in the SEC charges, they would be able to complain to the SEC, file a private lawsuit, or both, lawyers said. People close to the situation said that AIG was reviewing deals to insure $6bn-worth of Goldman’s collateralised debt obligations in the run-up to the crisis. They added that AIG had yet to decide whether to take action.
RBS Bides Time After $840M Losses. Royal Bank of Scotland, the part-nationalised UK bank that lost $840m in an allegedly fraudulent investment created by Goldman Sachs(GS), will await the outcome of US investigations before deciding whether to pursue its own legal action. RBS will see if the Securities and Exchange Commission is likely to be successful in the civil suit it has launched against Goldman.
Lansdowne Took Bet That Pru Shares Will Slide. One of Britain’s most successful hedge fund groups revealed yesterday that it had taken a £47 million bet that Prudential’s share price would fall. Lansdowne Partners, which has $16 billion (£10.5 billion) of funds under management and a strong record in profiting from the ups and downs of bank shares, disclosed a 0.32 per cent short position. The down bet comes only days before the life assurer is scheduled to disclose details of a $20 billion capital-raising to finance the $35.5 billion acquisition of AIA, the Asian insurance division of AIG.
SpiegelOnline:
'We Cannot Allow Greece to Turn into a Second Lehman Brothers'. German Finance Minister Wolfgang Schäuble talks to SPIEGEL about efforts to save Greece from bankruptcy, plans to reform the euro zone and the need to further regulate the financial sector.
Chosun Ilbo:
South Korea's National Pension Service plans to reduce its holding of U.S. government debt to diversify its bond investment, citing government and pension officials.
Evening Recommendations Citigroup:
Reiterated Buy on (CVG), target $15, removed from Top Picks Live list.
Reiterated Buy on (HAL), raised estimates, boosted target to $43.
Reiterated Buy on (AMZN), target $180.
Night Trading
Asian indices are -.25% to +.75% on average.
Asia Ex-Japan Investment Grade CDS Index 94.0 -1.0 basis point.
The weekly retail sales reports, weekly API energy inventory data, Greek 3-month bill auction, ABC Consumer Confidence reading and the (JCP) analyst meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.
North American Investment Grade CDS Index 89.40 bps +5.85%
European Financial Sector CDS Index 87.84 bps +12.0%
Western Europe Sovereign Debt CDS Index 93.83 bps +2.84%
Emerging Market CDS Index 209.52 bps -.86%
2-Year Swap Spread 15.0 bps -1 bp
TED Spread 16.0 unch.
Economic Gauges:
3-Month T-Bill Yield .15% unch.
Yield Curve 282.0 bps unch.
China Import Iron Ore Spot $179.40/Metric Tonne +.73%
Citi US Economic Surprise Index +23.80 -4.2 points
10-Year TIPS Spread 2.33% unch.
Overseas Futures:
Nikkei Futures: Indicating +17 open in Japan
DAX Futures: Indicating +26 open in Germany
Portfolio:
Slightly Lower: On losses in my Biotech and Tech long positions
Disclosed Trades: Covered all (IWM)/(QQQQ) hedges and some of my (EEM) short
Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as stocks reverse morning losses to trade at session highs despite mostly negative headlines. On the positive side, HMO, I-Bank and Bank stocks are especially strong, rising .75%+. Oil is falling -1.3% on worries over the ramifications of the (GS) charges, European sovereign debt concerns and China hard-landing fears. (XLF) has outperformed throughout most of the day. On the negative side, Coal, Oil Tanker, Computer, Airline, Gaming and Alt Energy shares are substantially underperforming, falling 1.0%+. The Greece 10-year/bund spread is surging +8.0% to 461 basis points. The Greece sovereign cds is jumping another +5.8% today and the surge in the euro financial sector cds is another large negative. Investor angst gauges are still registering near-term complacency. Given the news, I am very surprised the market is holding up as well as it is again today. This resilience is noteworthy. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, profit-taking, eurozone sovereign debt worries, eurozone economic slowdown concerns and china hard-landing fears.
