Euro Falls Toward Lowest in Almost Year Versus Dollar on Greek Budget Gap. The euro fell to near the lowest level in a year against the dollar on speculation international officials will express concerns that Greece’s escalating debt crisis will threaten the global recovery. The euro slid versus all 16 major counterparts as policy makers from the Group of 20 industrial and developing nations meet in Washington today. “There are a number of countries who could easily go down the same path, and the ability for Europe to bail out all of those economies is, I would imagine, quite limited,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “A resolution is needed quite quickly. Otherwise, the euro is going to continue to weaken.”
China Won't Accept International Pressure on Yuan, Reuters Says. China will not accept international pressure to revalue the yuan, Reuters reported Vice Commerce Minister Fu Ziying saying yesterday during a trip to Africa. Changes to China’s yuan policy is a matter of “national soveriegnty” and will be based on “economic conditions,” Reuters quoted Fu as saying.
China Home Prices to Fall 20% This Year, BNP Says. China’s home prices may fall by as much as 20 percent in the second half, as government measures to curb credit, increase land supply and a potential property holding tax cool speculation, according to BNP Paribas. “The State Council and political leadership have demonstrated a strong political will, at least at a central level, to curb the property bubble,” BNP analysts Chen Xingdong and Isaac Meng said in a report today. The cabinet “considers elevated property prices and further rises as not only economic- financial risks but also as undermining social stability.” BNP joins Citigroup Inc. in predicting prices may drop as much as 20 percent as tightening measures take hold. A “turning point” in the real-estate market is “unavoidable,” Citigroup analysts Oscar Choi and Marco Sze said in a report yesterday. A measure of China property stocks has declined 18 percent this year, the worst performer among the five industry groups on the Shanghai Composite Index. Housing prices in so-called first-tier and second-tier cities are “clearly in a bubble,” the BNP analysts said. “First-quarter property sales and prices could be at a significant cyclical peak.”
Big Bank Breakup Time Gets Boost From Goldman(GS): Simon Johnson. When corporate interests get out of control and start to hurt society, we typically deal with the issue in a constructive manner -- breaking up oversized companies, such as AT&T Corp., and regulating activities that are manifestly dangerous to society, as was done with banking from the 1930s. We now need to update and apply this approach to companies such as Goldman Sachs. Kaufman’s recommendations may not reach full legislative fruition in this cycle, but over-weaning financial power is rarely reined in so quickly.
U.S. 30-Year Yield Near Key Level, May Fall: Technical Analysis. The Treasury 30-year bond yieldmay fall to a three-month low of 4.48 percent after declining below a key resistance level on concern Greece’s government will cut or delay payments to bond investors, according to UBS AG. “Sovereign credit issues are a factor influencing events in the Treasury market,” Chris Ahrens, head of interest-rate strategy at UBS in Stamford, Connecticut, said in an interview.
Microsoft(MSFT) Third-Quarter Sales Miss Some Predictions. Microsoft Corp., the world’s largest software maker, reported third-quarter revenue that missed analysts’ most optimistic predictions, a sign that corporate customers may be putting off computer purchases.
Amazon.com Earnings Forecast Misses Analyst Estimates. Amazon.com Inc. predicted second- quarter earnings that missed analysts’ estimates, signaling the Web retailer isn’t benefiting from a rebounding economy as much as some investors had expected as competition intensifies.
AmEx(AXP) Profit Climbs as Consumers Spend. American Express Co., the biggest U.S. credit-card issuer by purchases, said first-quarter profit doubled as consumers boosted spending. Income from continuing operations climbed to $885 million, or 73 cents a share, from $443 million, or 32 cents, in the same period in 2009, New York-based AmEx said today in a statement. The average estimate of analysts surveyed by Bloomberg was 63 cents. Chief Executive Officer Kenneth I. Chenault, 58, kept AmEx profitable during the recession, and the surge in credit-card spending adds to evidence that the industry may be mending.
HSBC's Mahendran Shifts Funds From Emerging Markets as Interest Rates Rise. HSBC Private Bank is shifting funds to shares in developed nations and cutting holdings of bonds and stocks in emerging markets, predicting asset prices will drop as much as 10 percent as developing nations raise interest rates. “Emerging markets will underperform for another six months,” Arjuna Mahendran, Singapore-based head of investment strategy for Asia at the unit of Europe’s largest bank, said in an interview yesterday. “We’ve been investing in the U.S. and Europe for the last three months because we feel the risk return trade-off is better.” Shares in the U.S. and Europe are outperforming China and India so far this year as policy makers in developed markets seek to revive economies reeling from the worst slump since the Great Depression. Central banks in Asia, which is leading the global recovery, are starting to raise borrowing costs to prevent overheating and slow inflation. “I expect there will be a correction in emerging-market stocks and bonds,” Mahendran said. Monetary tightening “will take money off the table and have an impact on stock markets.”
Apple(AAPL) Took 72% of Japan Smartphone Market in 2009. Apple Inc. shipped 1.69 million iPhones in Japan in the fiscal year ended March 31, capturing the top share of the country’s smartphone market, Tokyo-based MM Research Institute Ltd. said. The iPhone, offered by Japan’s third-largest wireless carrier Softbank Corp., accounted for 72 percent of smartphones shipped in the country in the period, the Tokyo-based researcher said in a report yesterday. Taiwan’s HTC Corp. was second with 11 percent, followed by Toshiba Corp. with 6.8 percent, it said.
Buffett Has 'Great Confidence' in Goldman Sachs(GS), Berkshire's(BRK/A) Murphy Says. Berkshire Hathaway Inc.’s Warren Buffett, who injected $5 billion into Goldman Sachs Group Inc. in 2008, remains comfortable with his investment after regulators sued the bank for fraud, said Berkshire Director Thomas Murphy. “He’s not concerned with the investment at all,” Murphy, 84, said in a Bloomberg Television interview, citing a telephone conversation with Buffett, Berkshire’s chief executive officer. “He has to see what’s going to happen on it, but I think he has great confidence in Goldman,” Murphy said. The two men spoke after the Securities and Exchange Commission announced its lawsuit on April 16, Murphy said. “I also have great respect for Goldman,” Murphy said. Buffett may be called on to address criticism of Goldman Sachs on May 1 when tens of thousands of investors gather in Omaha, Nebraska, for Berkshire’s annual meeting. At last year’s meeting, he countered public anger over the taxpayer-funded bank bailouts by touting Wells Fargo & Co.(WFC), one of Berkshire’s top holdings and the recipient of $25 billion in aid. “When Warren and Berkshire stepped up to make this investment, it was a very strong statement of its belief, his belief, in not just the strength of Goldman but its integrity,” Olson said in an interview with Bloomberg Television. Murphy, a Berkshire director since 2003, is a former chairman and CEO of Capital Cities/ABC, one of Buffett’s most successful investments in the 1990s.
Wall Street Journal:
Probe Turns to Buffett Deal. A Goldman Sachs Group Inc.(GS) director tipped off a hedge-fund billionaire about a $5 billion investment in Goldman by Warren Buffett's Berkshire Hathaway Inc. before a public announcement of the deal at the height of the 2008 financial crisis, a person close to the situation says. The revelation marks a significant turn in the government's case against Raj Rajaratnam, the hedge-fund titan at the center of the largest insider-trading case in a generation. Mr. Buffett's investment in Goldman in September 2008 was a watershed moment in the financial crisis. One of the world's savviest investors, Mr. Buffett helped allay fears about the instability of the financial system by backing America's leading investment bank. The new disclosure stems from a government examination into whether the Goldman director, Rajat Gupta, gave inside information to Mr. Rajaratnam. In a court filing March 22, the government alleged that Mr. Rajaratnam or "co-conspirators" traded on non-public information about Goldman. In a filing last week, the government provided more details about the information it alleges Mr. Rajaratnam received, including advance notice about the Buffett transaction with Goldman. That information came from Mr. Gupta, a person familiar with the matter says. Federal prosecutors notified Mr. Gupta in a letter that they had intercepted phone conversations between him and Mr. Rajaratnam. Mr. Gupta told Goldman last month he wouldn't seek re-election as a director.
Ratings Emails Show Concerns at Rating Firms Over Goldman's(GS) Abacus Deals. New documents from a congressional inquiry shows the tense relationship between credit-ratings firms and Goldman Sachs Group Inc. as they structured risky deals like the one featured in the recent fraud allegations against the investment bank. Such debates between credit raters and issuing companies are commonplace. The newly released internal emails and other communications depict Goldman bankers tussling with analysts at Standard & Poor's and Moody's Corp. over the process of rating mortgage-backed securities. "I am getting serious pushback from Goldman on a deal that they want to go to market with today," notes one Moody's analyst in an April 2006 email. The analyst was being asked by Goldman to give more favorable terms than the ratings firm was offering. In another email dated May 2006, an S&P analyst talked openly about a weakness in the Abacus deal, though it couldn't be determined what that shortcoming was. "It was a known flaw not only in that particular Abacus trade, but in pretty much all Abacus trades … ." S&P is a unit of McGraw-Hill Cos(MHP). The committee says that overall revenues of the three major ratings firms grew from less than $3 billion in 2002 to more than $6 billion in 2007, fueled by the growth in high-yielding subprime-mortgage securities. The Senate Permanent Subcommittee on Investigations says the ratings increasingly were affected by "gaining market share and revenues and pleasing investment bankers bringing business to the firm." Emails show that some people within the ratings firms were becoming concerned with potential fallout. One internal email from S&P in June 2005 warns that "Screwing with criteria to 'get the deal' is putting the entire S&P franchise at risk—it's a bad idea." Another from August 2006 says raters have "become so beholden to their top issuers for revenue they have all developed a kind of Stockholm syndrome which they mistakenly tag as Customer Value creation."
Grassley: GM Uses 'TARP Money Shuffle' to Pay Loans. A top Republican says General Motors’ announcement this week that it will repay its federal loans early is “nothing more than an elaborate TARP money shuffle.” In a letter to Treasury Secretary Tim Geithner, Sen. Charles Grassley of Iowa fumes that the source of the funds for the $4.7 billion repayment is not GM earnings, but rather a Treasury escrow account. He chides the company and the administration for suggesting in recent statements that the money is coming from GM earnings. Grassley writes that GM’s early repayment of the federal loan is aimed at diverting attention from another uncomfortable issue – the big break the car company would get on a proposed tax to recoup TARP losses. GM is expected to generate some of the biggest losses in the TARP program, but it won’t have to pay any money under the so-called TARP tax the Obama administration wants to impose on large financial institutions. Treasury and GM officials don’t dispute that the money to repay the loan is coming from TARP funds. But they said that’s been clearly disclosed.
Goldman(GS) Board Juggling Two Crises, Silently. The SEC Case and Earlier Gupta Matter Occupy Goldman Directors but They've Had No Comment. As trouble mounts for Goldman Sachs Group Inc., directors have remained silent. The 12-member board met Monday but has made no public statements about the fraud lawsuit filed against Goldman by the Securities and Exchange Commission or the examination by federal prosecutors of whether director Rajat Gupta gave inside information about the firm to Galleon hedge-fund founder Raj Rajaratnam.
In Germany, a Backlash.Goldman Sachs Group Inc.(GS) brought investment banking to Germany 20 years ago. Now, many here say it is giving the business a bad name. Goldman's approach to winning business is coming under fire from German officials, companies and banks. The firm's latest headache: A dispute with the city of Berlin, which has accused Goldman of trying to intimidate it with legal threats in order to make more profit from a housing sale.
Iran Launches War Games, Lobbies Against Sanctions. Iran's Revolutionary Guard Corps started a large-scale, land, sea and air exercise in the Persian Gulf and strategic Strait of Hormuz early Thursday, with state media reporting units would test-fire new missile capabilities during the drill, dubbed "Great Prophet 5."
For-Profit School Prepares Students For Public Sector. So Capella Education's (CPLA) new School of Public Service Leadership came at an opportune time. Announced in June, it's offering bachelor's, master's and doctoral degrees in public administration through Capella University's all-online classes.
NY Times:
U.S. Lists Companies Aiding Iran's Energy Projects. Over the past five years, 41 foreign companies have helped Iran develop its oil and gas sector, which accounts for more than half of the Iranian government’s revenues, Congressional investigators reported Thursday. The Government Accountability Office said the companies provided expertise, equipment and financing and did construction work on oil and gas pipelines, enabling Iran to increase energy production and profits. No American companies were listed in the report, but the China National Petroleum Corporation was reported to be financing an oil field in an agreement with the Iranian government estimated to be worth more than $2 billion. Daewoo Shipbuilding and Marine Engineering of South Korea was reported to be building tanker ships for Iran under a $384 million contact. The report did not determine whether the companies had violated the Iran Sanctions Act, devised to punish foreign companies that invested more than $20 million in a given year to develop Iran’s oil and gas fields. “Clearly, we need to take a tougher stance against companies tied to Iran’s refined petroleum capacity,” said Senator Kirsten Gillibrand, Democrat of New York, who has been pushing for hearings on companies that do business in Iran. “Companies whose profits fuel Iran’s nuclear ambitions should not be allowed to do business with the U.S. or benefit from the U.S. economy — period,” she added.
Senate Probe Finds Credit Rating Agencies Helped Banks Conceal Risks of Investments. Credit rating agencies helped banks disguise the risks of investments they marketed before the financial crisis erupted, a Senate panel has concluded. The rating agencies relied on hefty fees from banks, which wanted them to rate risky investments as safe, the Permanent Subcommittee on Investigations said in a report Thursday. Panel chairman Sen. Carl Levin, said this system let banks "sell high-risk securities in bottles with low-risk labels" — spreading toxic debt through the financial system. Once the crisis became apparent, Levin said, rating agencies failed to acknowledge the problems fast enough. That led to mass downgrades of billions in investments, shocking the financial system and triggering the crisis, Levin said. "By first instilling unwarranted confidence in high risk securities and then failing to downgrade them in a responsible manner, the credit rating agencies share blame for the massive economic damage that followed," the Michigan Democrat said.
North Carolina Cools on President Obama. President Barack Obama jets off Friday for a weekend getaway to a funky corner of Appalachia in North Carolina, a state that boosted his presidential chances and now offers him a more tepid political embrace. Obama’s approval rating has slid in the state he won by just 14,000 votes, hovering in the low 40s, according to some polls. Several House Democrats from North Carolina broke ranks with the White House in the health care vote. Their decision galvanized pro-labor Democrats to work to form a third party, North Carolina First, which could jeopardize Democrats’ congressional majority.
Roll Call:
Lincoln's Derivatives Plan Meets Resistance in Her Caucus. Senate Agriculture, Nutrition and Forestry Chairman Blanche Lincoln (D-Ark.) appears to be fighting an uphill battle to get her piece of the financial regulatory reform bill into the larger package before it hits the floor, possibly next week. Though the Agriculture panel approved a bill this week that would regulate complicated financial instruments known as derivatives, Senate Democratic leaders and Senate Banking, Housing and Urban Affairs Chairman Chris Dodd (D-Conn.) do not appear to be making it easy for Lincoln to plant her flag in Dodd’s broader measure, which already includes a less rigorous derivatives piece. Lincoln’s bill has been described as to the left of what most Democrats and the Obama administration have been seeking, but she did draw the support of one Republican —Sen. Chuck Grassley (Iowa) — during committee consideration. The issue flared Wednesday during a meeting of Democratic committee chairmen, when the topic of derivatives came up. After Dodd suggested that her measure may not be folded into his bill but would have to battle it out on the floor as a stand-alone amendment, Lincoln “threw a fit,” one source said, and argued passionately for her committee’s bill. Senate Majority Leader Harry Reid (D-Nev.) told Lincoln to work out her differences with Sen. Jack Reed (D-R.I.), a Banking panel member whom Dodd tapped to work on derivatives. But sources said Lincoln would prefer to work with Dodd on a chairman-to-chairman level. Fans of Lincoln’s bill came to her aid at Thursday’s regular Democratic Policy Committee lunch with harsh criticisms for Dodd and Reid, sources confirmed. At one point, Sen. Maria Cantwell (D-Wash.) stood up and attacked leaders for not showing Lincoln the respect she deserved on the issue. Cantwell also implied derisively that Banking Democrats believed they were smarter than others in the caucus, the sources said. With White House Senior Adviser David Axelrod, Communications Director Dan Pfeiffer and other presidential staff in attendance, Cantwell saved her sharpest criticisms for White House economic adviser Larry Summers and Treasury Secretary Timothy Geithner, who she said were working at cross purposes with Democrats in the Senate.
USA Today:
SEC Staffers Watched Porn as Economy Crashed. Senior staffers at the Securities and Exchange Commission spent hours surfing pornographic websites on government-issued computers while they were being paid to police the financial system, an agency watchdog says. The SEC's inspector general conducted 33 probes of employees looking at explicit images in the past five years, according to a memo obtained by The Associated Press. The memo says 31 of those probes occurred in the 2½ years since the financial system teetered and nearly crashed. The staffers' behavior violated government-wide ethics rules, it says. It was written by SEC Inspector General David Kotz in response to a request from Sen. Chuck Grassley, R-Iowa. The memo was first reported Thursday evening by ABC News. It summarizes past inspector general probes and reports some shocking findings:
Reuters:
Derivatives Bill Calls for US Carbon Market Study. A tough new proposal to regulate U.S. markets calls for top regulators and government officials to conduct a study on transparency in emerging U.S. carbon markets as part of the financial reform package. The heads of the Treasury Department, the Commodity Futures Trading Commission and other U.S. agencies would be required to study oversight of existing and prospective carbon markets, according to the proposal, part of a bill passed by the Senate Agriculture Committee this week. The goal of the study is "to ensure an efficient, secure, and transparent carbon market, including oversight of spot markets and derivative markets," the bill said.
US Sets Preliminary Duties on Chinese Steel Pipes. The U.S. Commerce Department on Thursday announced preliminary anti-dumping duties ranging from 32 to 98 percent on hundreds of millions of seamless steel pipes from China.
Financial Times:
IMF Says US Plan 'Comes Too Soon'. The head of the International Monetary Fund expressed mixed emotions about the rallying cry for financial regulation issued by Barack Obama yesterday as leading nations remained split on the issue. Dominique Strauss-Kahn said he was worried that the US president's plan "comes too soon". "Countries moving quickly makes it more difficult to have a global answer," he said, adding that what Mr Obama wanted was "not too far from what we are proposing - so it doesn't create a big problem".
Guest Post: Mohamed El-Erian on the Worsening Greek Problem. It appears that the catalyst for the recent down leg in the prices of Greek instruments is selling by long-standing holders. This is consistent with the April 7th observation that, counter-intuitively for some, persistently high and volatile government spreads would push some investors to sell, rather than buy/hold. Absent a meaningful change, this technical factor will gain both traction and momentum. There are still too many investors out there with industrial country government holdings (such as Greece) that they deemed (wrongly) to be interest rate risk exposure rather than credit risk exposure. With excessively large risk-adjusted holdings, the continued volatility of sovereign debt prices will force these investors to sell, further fueling the contagion risk associated with the Greek debt debacle. In turn, this will increase the probability of large deposit outflows from Greek banks. Judging from history, it is very difficult to turn these technical dynamics around in the absence of a very large distressed debt buyer base (spreads are not yet wide enough for that) and/or massive official financing (the timely availability of which faces some important hurdles).
Movie Derivatives. Lights, camera, inaction! Even before hearing all the testimony, a key Senate committee has probably put an end to the idea of movie futures, which would have allowed punters to bet on a film’s box office take. Moviegoers’ dreams of shorting the next Heaven’s Gate or making a killing predicting the next Titanic will have to wait. Cantor Futures Exchange and Media Derivatives gained regulatory approval for the concept recently, though not for individual contracts, and the political backlash against the idea now seems to have doomed it.
Telegraph:
Escalating Greek Default Fears Rock Europe's Debt Markets. Greece's debt crisis has reached a dramatic crescendo after the EU revealed that the country's debt and deficit figures are even worse than feared and leading banks began to talk openly of debt-restructuring. With contagion spreading across Southern Europe, spreads on 10-year Greek bonds exploded to almost 600 basis points over German Bunds in panic trading, pushing borrowing costs close to 9pc. Rates on two-year debt rose to 10.6pc in a market gone mad. “It is clear that the Greek situation is a very serious one,” said Dominique Strauss-Kahn, head of the International Monetary Fund. “There is no silver bullet to solve it in an easy manner.” “This is now a real test of EU leadership,” said Julian Callow, of Barclays Capital. “Europe needs to act very fast to ring-fence Greece to prevent contagion. There has never been a default in Western Europe since World War Two and the whole financial system is depending on the assumption that it cannot be allowed to happen. There may need to be some sort of 'Brady bonds’ or 'Barroso bonds’,” he said, referring to the solution for Latin American debt in the 1980s. Germany’s ruling coalition is still sending mixed messages. The finance spokesman for Germany’s Free Democrats, Frank Schäffler, told Handelsblatt on Thursday that Greece should “voluntarily step outside the eurozone” if it cannot comply with austerity demands. “Any other way is frankly a placebo to calm the markets,” he said. The Greek media said the country may ask for a short-term EU loan before the full bail-out kicks in, though it is unclear how this could work. Nor is it clear what premier George Papandreou hopes to gain from delaying activation of the rescue mechanism, unless he is hoping to exploit fears of EMU-wide contagion to extract better terms. Athens is demanding a loan rate below the 5pc so far agreed. Any talk of Greek restructuring is potentially dangerous. “It would cause massive [bond] spread turmoil in other peripherals if a troubled EMU member was not even given the chance to put its consolidation plans into practice,” said Marcel Bross, of Commerzbank. Suki Mann, of Societe Generale, said such a move would be a major headache for Portugal, Spain and Ireland. “In extremis, this could lead to debt restructuring in these countries too,” he said. Data from the Bank for International Settlements shows that French-based banks have $75bn of exposure to Greek debt, and German banks have $45bn . Both countries are heavily exposed to Portugal as well. Northern Europe may have to agree to softer terms for Greek terms at the end of this poker game, or risk a banking crisis.
Durable Goods Orders for March are estimated to rise +.2% versus a +.5% gain in February.
Durables Ex Transports for March are estimated to rise +.7% versus a +.9% gain in February.
10:00 am EST
New Home Sales for March are estimated to rise to 325K versus 308K in February.
Upcoming Splits
None of note
Other Potential Market Movers
The Fed's Kohn speaking, G-7/G-20/World Bank Meetings and the Geithner G-20 briefing could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity 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 89.73 bps +3.48%
European Financial Sector CDS Index 96.33 bps +10.28%
Western Europe Sovereign Debt CDS Index 100.17 bps +1.09%
Emerging Market CDS Index 212.75 bps +2.99%
2-Year Swap Spread 18.0 +3 bps
TED Spread 17.0 unch.
Economic Gauges:
3-Month T-Bill Yield .15% +1 bp
Yield Curve 275.0 +1 bp
China Import Iron Ore Spot $184.70/Metric Tonne -.97%
Citi US Economic Surprise Index +21.60 -1.2 point
10-Year TIPS Spread 2.34% -1 bp
Overseas Futures:
Nikkei Futures: Indicating -39 open in Japan
DAX Futures: Indicating +48 open in Germany
Portfolio:
Higher: On gains in my Retail, Financial and Tech long positions
Disclosed Trades: Covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short
Market Exposure: Moved to 100% Net Long
BOTTOM LINE: Today's overall market action is very bullish as equities reverse morning losses on heavy volume despite mostly negative news. On the positive side, Gaming, Restaurant, Homebuilding, Disk Drive and Semi stocks are especially strong, rising 2.0%+. Small/Mid-Caps are outperforming. Cyclicals are also relatively strong. (IYR) has outperformed throughout most of the day, rising +1.7%. The AAII % Bulls fell to 38.12 this week, while the % Bears rose to 34.25, which is also a positive. The euro is trading near session lows and continues to trade poorly. On the negative side, Education, Drug, Medical and Wireless shares are under meaningful pressure, falling 1.0%+. The Greece 10-year/bund spread is gaining +13.0% to 576 basis points. The Greece sovereign cds is rising another +24.7% today to 605.75 bps and the Portugal sovereign cds is jumping +20.0% to 269.0 bps. Investor angst gauges are registering a bit more fear, which is a big positive. Market leading stocks are strongly outperforming. The broad market continues to trade very well in the face of significant headwinds, which is a large positive. President Obama's speech on financial reform was much less combative than expected, which reversed morning losses in the big banks. As well, the market seems to be interpreting the eurozone debt problems as a net positive short-term for US equities as large global institutions seek the relative safety of US assets. Finally, (AAPL)'s sharp reversal higher on heavy volume was an important factor in today's market rally off the lows. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less financial sector pessimism and earnings optimism.
Greek Two-Year Note Yields Jump Over 11% Amid Talks, Rating Cut. Greek bonds plunged, driving two- year yields above 11 percent, after the European Union said the nation’s 2009 budget deficit was larger than previously stated and Moody’s Investors Service cut its credit rating one step. The cost of insuring against default soared, rising above Ukraine and putting it closer to Argentina and Venezuela. Ten- year bonds slid for an eighth day, sending the yield to more than 9 percent. The EU’s statistics office said today that Greece’s deficit was 13.6 percent of gross domestic product last year. Greek officials are holding a second day of talks today with the European Commission and International Monetary Fund. Moody’s lowered the rating to A3 from A2. “The market recognizes that Greece can’t get out of this on its own and it’s a question of whether it’s the bondholders that get a haircut or the other euro-area states that pay the bill, or a combination of the two,” said Paul Lambert, head of the global macro team at Polar Capital Holdings Plc in London. Greek two-year note yields advanced 265 basis points to 10.83 percent as of 4:04 p.m. in London, after earlier climbing close to 11.5 percent. The 4.3 percent security due March 2012 tumbled 4.1, or 41 euros per 1,000-euro face amount, to 88.30. The 10-year yield climbed 84 basis points to 9.01 percent. Prime Minister George Papandreou’s government has failed to convince investors Greece can push through austerity measures to shore up the country’s finances. The budget deficit may rise to 14 percent as “off-market swaps” cloud estimates, Luxembourg- based Eurostat said today. The EU limit is 3 percent of GDP. Credit-default swaps insuring Greek government debt for five years rose 158 basis points to a record 644, according to CMA DataVision prices. Swaps on Venezuela climbed 10 basis points to 823, according to calculations based so-called up- front prices quoted for higher-risk countries. Argentina debt swaps were 13.9 percent upfront, or 862 basis points. The bonds of other so-called peripheral euro-region nations fell, with the yield premium that investors demand to hold Portuguese 10-year government debt instead of benchmark German bunds climbing 21 basis points to 190 basis points, the most since Bloomberg records began. The spread between Irish and German bonds widened 20 basis points to 172 basis points, while the Spanish-German spread grew 12 basis points to 91 basis points.
Euro-Area Deficit Widens to More Than Double Limit. The euro area’s budget deficit widened to more than double the European Union’s 3 percent limit in 2009, led by Greece and Ireland. The total budget gap for the 16-nation euro region widened to 6.3 percent of gross domestic product last year, the biggest since the introduction of the euro in 1999, from 2 percent in 2008, the EU’s Luxembourg-based statistics office said today. At 14.3 percent of GDP, Ireland had the largest shortfall, while Greece’s deficit was 13.6 percent. European governments may struggle to narrow their budget gaps after spending billions on stimulus measures. The International Monetary Fund on April 20 called rising state debt the biggest threat to the global economy.
CBS, Turner Sign $10.8 Billion NCAA Basketball Deal. CBS Corp. and Time Warner Inc.’s Turner Broadcasting agreed to a $10.8 billion, 14-year contract for broadcast, Internet and wireless rights on an expanded men’s college basketball championship tournament.
Wall Street Journal:
SEC Probes Fund Industry's Use of Derivatives. The U.S. Securities & Exchange Commission is conducting a sweep of examinations to investigate how the mutual fund industry uses derivative financial products, the head of SEC’s Office of Compliance Inspections and Examinations said Tuesday. The goal of the investigation is to help regulators “understand the nature of derivatives in the mutual fund sector” and “make sure that mutual funds aren’t taking on unnecessary risks that people don’t understand,” said Carlo di Florio, who took the helm of OCIE in January, told Dow Jones Newswires in an interview. The probe is part of a broader effort by the SEC to understand how complex financial products impact the markets and investors.
Did John Paulson Undermine Goldman's(GS) 'Big Boy' Defense? Paulson offered a slightly different take on how sophisticated CDO investors were. Responding to one investor’s confusion about how the CDO market worked, Paulson assured her: “If you find this confusing you should. Most people do. Even the people who participated in this market didn’t understand it either.”
Galvin Also Scrutinizing Goldman(GS). Massachusetts Secretary of State William F. Galvin is conducting a separate investigation of Goldman Sachs & Co. that he said has similarities to the federal government’s case against the Wall Street titan: potential conflicts of interest and a corporate culture of favoring certain clients. His office has been investigating the practice at Goldman of “huddles,’’ or meetings in which the company’s traders and securities analysts discuss investments and market trends, and then, allegedly, share insights from these meetings with hedge funds and other large clients. Galvin said the practice gives certain clients valuable information ahead of others. “It’s a recurring theme. It’s conflicts of interest,’’ Galvin said in an interview yesterday. “It is illustrative of the culture. Even if you take the official explanation being offered by Goldman, there’s a culture that preferred customers get special treatment.’’
Big Government:
IndyMac Attack:At the end of 2007, hedge fund billionaire John Paulson invested $15 million in the leftist non-profit, Center for Responsible Lending, their largest single donation ever. Around the same time, Paulson and his employees contributed over $100,000 to the Democratic Senatorial Campaign Committee, headed, at the time, by Sen. Chuck Schumer. Roughly six months later, CRL and Sen. Schumer both launched a highly public attack on the California-based mortgage lender, Indymac. The lender failed, wiping out the investment of thousands of people. Roughly six months after that, John Paulson, in partnership with George Soros, bought up the remnants of Indymac for pennies on the dollar.
Lindsay Graham: Immigration Push Could 'Destroy' Climate Talks. A top Senate negotiator on climate change believes that a sudden turn by Senate Democrats to immigration could “destroy” any hope of a major climate and energy bill this year. “This comes out of left field,” said Sen. Lindsey Graham (R-S.C.), after hearing that Democratic leaders may now push immigration reform ahead of a climate bill. “I’m working as earnestly as I can to craft climate and energy independence, clean air and jobs, and now we’re being told that we’re going to immigration. We haven’t done anything to prepare the body of the country for immigration.”
Reuters:
BofA's Krawcheck Says New Broker Rules "Inevitable". The latest call for brokers to accept pending regulatory reform comes from a surprising source - one of the industry's top executives. Bank of America Corp (BAC.N) wealth management chief Sallie Krawcheck said on Thursday that financial advisers should not oppose a looming regulatory overhaul of the U.S. securities industry but instead embrace coming change, saying it is good for customers.
Rooz:
Iran is boosting gasoline imports to counter sanctions urged by the U.S. and its allies that aim to discourage the country from pursuing a nuclear program. The Persian Gulf country imported more than $4.5 billion worth of gasoline in the Iranian year that ended on March 20th, citing customs statistics from last week. That represents a 67% gain in value and a 2.5-fold increase in volume, compared with the previous year.
