North American Investment Grade CDS Index 90.36 bps +.1%
European Financial Sector CDS Index 103.96 bps +4.21%
Western Europe Sovereign Debt CDS Index 114.66 bps -1.15%
Emerging Market CDS Index 211.54 bps -4.56%
2-Year Swap Spread 25.0 +1 bp
TED Spread 19.0 unch.
Economic Gauges:
3-Month T-Bill Yield .16% unch.
Yield Curve 269.0 -1 b
China Import Iron Ore Spot $172.90/Metric Tonne unch.
Citi US Economic Surprise Index +20.30 unch.
10-Year TIPS Spread 2.40% unch.
Overseas Futures:
Nikkei Futures: Indicating +83 open in Japan
DAX Futures: Indicating +25 open in Germany
Portfolio:
Higher: On Gains in my Financial, Retail, Biotech and Tech long positions
Disclosed Trades: None
Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is very bullish as equities trade near session highs despite mounting headwinds. On the positive side, Oil Tanker, REIT, Disk Drive, Road & Rail and Gaming stocks are especially strong, rising 2.5%+. (IYR) has traded very well throughout the day. The euro remains heavy despite the Greece bailout. On the negative side, Coal, Oil Service, Gold and Steel shares are down on the day. Despite the rally in equities, the major CDS indices aren't falling much and the euro financial sector cds is rising meaningfully. As well, most commodities are trading poorly today. The market's resilience to recent negative developments remains very impressive. We have been stuck in a relatively volatile, but tight range over the last few weeks. I want to see the S&P 500 break free from this range before getting more aggressive on the long side. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less financial sector pessimism and declining economic fear.
Greek Anger Rises as Papandreou Calls for Sacrifices. Prime Minister George Papandreou’s call for Greeks to accept more sacrifices in return for staving off default was rejected by opposition leaders and unions, which are already organizing more protests. Unions representing more than 500,000 civil servants called a 48-hour strike starting May 4. Local government workers called a snap strike for today. Teachers are also on strike from tomorrow and a general strike, the third this year, is planned for May 5. Members of the opposition party Syriza plan to encircle the Finance Ministry in central Athens today. “Protests will increase, given we also have the pension issue before us,” said Spyros Papaspyros, the head of the federation of civil servant unions, ADEDY. “Opting for the easy path of cutting wages and pensions can’t be accepted.”
Goldman Sachs's(GS) Senior Management Should Be Replaced, Bove Says. Goldman Sachs Group Inc. should replace its top executives because they failed to understand the politics of the financial crisis and mishandled regulators’ claims of fraud against the firm, according to Richard Bove, an analyst at Rochdale Securities. “Goldman is going to have to pay a high price for its ineptitude,” Bove wrote in a note to investors yesterday. “Its shareholders already have.”
Copper Slumps to Seven-Week Low as China Metal Demand May Slow. Copper dropped to a seven-week low in New York after China ordered banks to set aside more deposits as reserves, fueling concern that the lending curbs by the world’s biggest metals consumer will damp demand. Stockpiles of copper tracked by the Shanghai Futures Exchange increased 0.8 percent to 189,441 metric tons last week, the highest level since at least 2003.
US. Economy: Manufacturing Expands by Most Since June 2004. Manufacturing in the U.S. expanded in April at the fastest pace since June 2004, indicating the world’s largest economy accelerated as it entered the second quarter. The Institute for Supply Management’s factory index rose to 60.4, exceeding the median forecast in a Bloomberg News survey of economists, from a March reading of 59.6. Americans’ spending increased in March by the most in five months, according to the Commerce Department.
Ahmadinejad Slams U.S. Nuclear Policy. Iranian President Mahmoud Ahmadinejad, in a speech Monday before the U.N., called for a vast remaking of the global institutions guarding the development of nuclear technologies, while denying his nation was seeking atomic weapons. Mr. Ahmadinejad demanded during his 35-minute address that the world's nuclear-weapons states agree to a clear timetable for the disbandment of their the arsenals, as well as to accept an independent body to oversee this process.
BP(BP) Says Crews Make Progress Stemming Oil Leaks. Bill Salvin, a company spokesman, said that crews had finished building a containment dome, a 4-story, 70-ton structure that the company plans to lower into place over one of the three leaks to catch the escaping oil and allow it to be pumped to the surface. The other two domes would be completed on Tuesday, Mr. Salvin said, and crews hoped to install all three domes by the weekend. “That will essentially eliminate most of the issues you have with oil in the water,” he said. The company was also preparing on Monday to try to install a shutoff valve at the site of one of the three leaks.
How Goldman(GS) Derivatives Amplified Crisis. The Senate investigation into Goldman Sachs offered concrete evidence last week of how defaults on subprime mortgage loans became so costly that they brought the financial system to its knees, The Wall Street Journal reported. After all, even at its height, subprime lending never represented more than a small percentage of the overall mortgage system — something more is needed to explain just why the fall was so drastic when it came. Documents released by the Senate investigation demonstrate that high-risk subprime mortgage bonds were effectively being replicated over and over again in the form of synthetic collateralized debt obligations. In one case, highlighted by The Wall Street Journal, a single $38 million subprime bond found its way into 30 debt pools, resulting in overall losses of $280 million to investors when the bond’s principal was lost. And that is why, in a Senate panel memo last week, Goldman was slammed for the replicating practice, which “magnified the impact of toxic mortgages.”
Apple(AAPL) On Track For $1 Billion of iPad Revenue in the First Quarter. Apple announced this morning that it sold its 1 millionth iPad last Friday. That is impressive as it sounds, and Apple's iPad is performing ahead of expectations. While there was obviously pent-up demand for the Apple tablet, selling a million of anything in a month -- let alone a $500+ gadget in April -- is an impressive feat.
Zero Hedge:
Market-Neutral Wipe Out, Likely Next on the Bailout Bandwagon as Liquidity Disappears Again.The Highbridge HSKAX index just suffered its biggest drop since March 2009. Market Neutral players are getting carted out feet first as liquidity is now totally gone and 100k SPY blocks move the market. Nobody but the upward biased and risk-free primary dealers want to participate in this market. MNs are deleveraging massively as the index hits lows not seen since mid-2008.
Weekly Standard:
American Oligarchy. Don't Expect Real Reform from the Wall Street Democrats. "Now, the Senate Republican leader, he paid a visit to Wall Street a week or two ago,” said President Obama at a California fundraiser for Barbara Boxer in mid-April, putting on a mocking, homespun voice. “He took along the chairman of their campaign committee. He met with some of the movers and shakers up there. I don’t know exactly what was discussed. All I can tell you is when he came back, he promptly announced he would oppose the financial regulatory reform.” To judge from the guffawing that followed, few in attendance realized that Obama is more dependent on “movers and shakers” in the financial sector than any president of our time, although the files of the Federal Election Commission make this clear as day. The movers at Goldman Sachs, whose top employees were grilled before the Senate Banking Committee last week, gave Obama’s party three times as much money in the last cycle ($4.5 million) as they gave to Mitch McConnell’s ($1.5 million). The shakers at Citicorp gave Democrats almost twice as much ($3.1 million) as they gave Republicans ($1.8 million). So every time the president accuses Republicans of trying to “block progress” or of defying “common sense,” as he did that night, he is executing a dangerous tightrope walk. His party’s electoral fortunes depend on his making forceful calls for reform of our banking laws. His party’s fundraising fortunes depend on his ensuring that no serious reform—of the kind that endangers the big banks’ size and power—ever happens. That may be why the Democrats’ strategy of painting the Republicans as obstructionists on finance reform has gained little traction. By the same token, if Republicans ever did get serious about reforming the banks—and even about breaking up an industry that has turned into a Democratic war chest—they would put Democrats in mortal peril.
Rasmussen Reports:
55% Rate U.S. Health Care System Good or Excellent, Just 13% Poor. Americans have felt little, if any, impact yet from the newly-passed plan to reform health care, and the majority of U.S. voters continue to give the current system positive ratings. The latest Rasmussen Reports national telephone survey shows that 55% of Likely Voters rate the current health care system as good or excellent. That’s up from 44% in February and 35% when the President first proposed his reform ideas last May. In July 2008, just 29% rated the health care system as good or excellent. The latest finding includes 17% who rate the current system as excellent. Just 13% of voters currently give the health care system a poor rating, down from 28% two months ago.
Politico:
Hedge Funds Get 'Free Ride'. Wall Street has taken its lumps in Washington recently and Goldman Sachs has become everyone’s whipping boy, but hedge funds and private equity firms have escaped relatively unscathed. “There’s no question they’ve gotten a free ride,” said Robert Weissman, president of the consumer group Public Citizen. And one reason for that, according to Weissman, is a particularly well-connected group of lobbyists. More than half the 83 lobbyists registered last year to work for the industries’ two trade groups, the Private Equity Council and the Managed Funds Association, have served in government — from Capitol Hill to the Treasury Department. While the revolving door is nothing new, the roster is nonetheless impressive — it has included three former members of Congress (Republican Richard Baker and Democrats Vic Fazio and Martin Frost) and about a half-dozen top staffers with ties to members of the Senate Banking Committee, including its chairman, Chris Dodd (D-Conn.), and Sen. Chuck Schumer (D-N.Y.).
N.Y. Lawmakers Blast Ahmadinejad at U.N. Summit. Members of New York's congressional delegation criticized Iranian President Mahmoud Ahmadinejad's presence at this week's United Nations nuclear non-proliferation summit as a "sham,” and Rep. Steve Israel (D-N.Y.) went one step further, calling for Ahmadinejad’s arrest. Sen. Kirsten Gillibrand, along with a handful of New York representatives, dismissed Ahmadinejad's speech at the United Nations, while calling for Senate hearings to investigate corporations engaging in business with Iran. “There are no other words to say it: Iran’s presence at this conference is a sham,” Gillibrand said in a release
Reuters:
Poll Shows Late Surge for Conservatives in Swing Seats. The Conservatives are making a late surge in key swing seats, suggesting it could be on course for a narrow but outright win in Thursday's parliamentary election, a poll published on Monday showed.
Ford(F) April U.S. Sales Rise 25%. Ford Motor Co posted a 25 percent increase in its April U.S. sales from a year earlier, propelled by record sales of its Fusion midsize sedan and robust demand for trucks led by the F-series pickup.
Independent:
Britain Faces Years of Austerity, Stephen King Says. After three leadership debates, we may have a better idea of who is likely to win (or, more accurately, who is likely to lose) on 6 May. But what happens thereafter remains a mystery. It's a mystery not so much because the leaders have offered little candour on where the public spending axe will fall. The great British public surely knows by now that the victor in next Thursday's general election will have to give us many spoonfuls of unpleasant medicine to make sure the budgetary figures add up, whether in the form of public-sector pay freezes, job cuts or tax increases (of which higher VAT is surely one of the more obvious candidates).
Greece Gets $146 Billion Rescue on EU, IMF Austerity Package. Euro-region ministers agreed to a 110 billion-euro ($146 billion) rescue package for Greece to prevent a default and stop the worst crisis in the currency’s 11-year history from spreading through the rest of the bloc.The first payment will be made before Greece’s next bond redemption on May 19, said Jean-Claude Juncker after chairing a meeting of euro-region finance ministers in Brussels yesterday. The 16-nation bloc will pay 80 billion euros at a rate of around 5 percent and the International Monetary Fund contributes the rest. Greece agreed to budget measures worth 13 percent of gross domestic product. “It’s an ambitious program, it’s austere but it’s absolutely necessary,” Juncker told reporters. Policy makers agreed to the unprecedented bailout after investors’ concerns about a potential Greek default sparked a rout in Portuguese and Spanish bonds last week and sent stock markets tumbling. At stake is the future of the euro 11 years after its creators left control of fiscal policy in national capitals. “The EU can afford to bail-out Greece and even Portugal, but it cannot afford bailing out Spain,” said Andrew Bosomworth, Munich-based head of portfolio management at Pacific Investment Management Co., which oversees the world’s largest mutual fund from Newport Beach, California. “Therefore a lot is resting on getting Greece right.” Germany will provide 28 percent of the euro region’s overall contribution. In return for rescue funds, Greece agreed to measures that the ADEDY civil servants union called “savage.” Greece will cut wages and freeze pensions for three years as well as increase the main sales tax to 23 percent from 21 percent. Rehn indicated that the Greek bailout plan can’t be seen as a blueprint for other euro nations as Greece is a “special case” because of the way previous governments fudged its deficit statistics. At 11.2 percent of GDP, Spain’s budget deficit was the third-highest in the euro region last year and Portugal’s was the fourth-biggest at 9.4 percent.
Euro Declines on Concern Greece Bailout Won't Halt Debt Crisis. The euro fell from a one-week high against the dollar on concern a 110 billion-euro ($146 billion) bailout package for Greece will fail to contain the region’s sovereign-debt crisis. Europe’s currency also weakened versus 13 of its 16 major counterparts on speculation the European Union will struggle to win agreement from its members on the aid plan for Greece. “While the rescue package is welcome, it remains to be seen if the deal signals a closure to the sovereign debt crisis in the eurozone,” said Philip Wee, senior currency economist at DBS Group Holdings Ltd. in Singapore. “The EU nations now need their parliaments to approve the aid, and markets remain skeptical over Greece’s resolve to implement tough reforms. In short, it is still too early to conclude that the worst is over for the single currency.”
China's Reserve-Ratio Rise May Not Be Enough to Whip Inflation. China’s third increase of bank reserve ratios this year left benchmark interest rates and the yuan’s peg to the dollar unchanged, risking the need for more concerted effort to contain property prices and inflation in coming months. The requirement will increase 50 basis points effective May 10, the People’s Bank of China said on its Web site yesterday. The current level is 16.5 percent for the biggest banks and 14.5 percent for smaller ones.
China Bank Reserve Ratio May Increase to 18%, Beijing News Says. China may raise its reserve ratio requirement for the nation’s banks to 18 percent, the Beijing News reported today, citing an unidentified official with the China Banking Regulatory Commission’s branch in Guangdong province.
China May 'Crash' in Next 9 to 12 Months, Faber Says. China’s economy will slow and possibly “crash” in the next nine to 12 months, Marc Faber, the publisher of the Gloom, Boom & Doom report, said. “The signals are all there, the symptoms of a major bubble are all there,” Faber said in a Bloomberg Television interview from Hong Kong. “The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months.” The Shanghai Composite Index has plunged 12 percent this year, the fourth-worst performer among 92 gauges tracked by Bloomberg globally, as the government stepped up measures to cool the property market and ordered banks to set aside more deposits as reserves. The opening of the World Expo in Shanghai, China’s richest city, is “not a particularly good omen,” Faber said, drawing parallels with 1873 World Exhibition in Vienna, which coincided with a slump in stock markets and a depression in the 1870s. BlackRock Inc.(BLK) is among money managers reducing their holdings on Chinese stocks on expectations that economic growth has peaked. The BlackRock Emerging Markets Fund has widened its “underweight” position for China versus the MSCI Emerging Markets Index to about 7.5 percent from 4.6 percent at the end of March, the fund’s London-based co-manager Dan Tubbs said.
Buffett Backs Goldman Sachs(GS) on Abacus Trade, Praises Blankfein. Berkshire Hathaway Inc.’s(BRK/A) Warren Buffett praised Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein and said the bank shouldn’t be blamed for losses suffered by clients who invested in mortgage bets at the center of a fraud suit filed by regulators. “He’s done a great job running that firm,” Buffett said yesterday in Omaha, Nebraska, in a Bloomberg Television interview before Berkshire’s annual shareholders meeting. He said he supports Blankfein “100 percent.” Buffett, 79, has become one of Goldman Sachs’s most visible advocates after the firm was sued last month by the U.S. Securities and Exchange Commission for misleading clients who invested in a collateralized debt obligation known as Abacus 2007-AC1. Buffett, who is also Berkshire’s CEO, invested $5 billion in Goldman Sachs in 2008 and has praised the bank for its risk management. Berkshire makes $500 million a year in interest on its Goldman Sachs preferred stock. The warrants Buffett negotiated as part of the deal give Berkshire the option to buy $5 billion of common stock for $115 a share. The shares closed at $145.20 on April 30. Berkshire’s paper profit on the warrants is about $1.3 billion, down from about $3 billion before the SEC lawsuit was announced. Net earnings were $3.63 billion in the first quarter after a gain of $1.4 billion on derivatives and investments, compared with a loss of $3.2 billion in the same period a year earlier, Buffett said yesterday. Operating earnings at Berkshire rose 30 percent to $2.2 billion.
FDIC's Bair Opposes Lincoln Proposal to Segregae Swaps Units. Federal Deposit Insurance Corp. Chairman Sheila Bair is opposing a Senate measure that could cut off privileges to banks like Goldman Sachs Group Inc.(GS) and JPMorgan Chase & Co.(JPM) that don’t segregate swaps trading units. The proposal would bar companies that deal in swaps, a form of derivative, from bank privileges such as access to the Federal Reserve’s discount lending window and emergency liquidity functions, and the FDIC’s deposit guarantee. The purpose, Lincoln has said, is to protect taxpayers and the banks who pay assessments to the Deposit Insurance Fund from financial institutions that deal in riskier forms of trading.
Buffett Says Derivatives Law May Spare Berkshire(BRK/A) on Collateral. Warren Buffett, who has warned about the dangers of unregulated derivatives, said a Senate plan to add oversight of the contracts probably won’t require his Berkshire Hathaway Inc. to put up collateral. “If the bill passes tomorrow, we would not have to post a dime,” Buffett said yesterday in Omaha, Nebraska, at Berkshire’s annual shareholders meeting. Lawmakers, who are seeking to impose collateral requirements on previously written derivatives, will probably focus only on companies that are deemed to be in weak financial condition, Buffett said. Buffett uses derivatives to speculate on the direction of equity markets and the credit quality of companies. Berkshire, where Buffett is chief executive officer, has about $63 billion at risk in its contracts. The firm has been pressing Congress to ensure that any new legislation won’t require it to put up funds as security against default on previously written contracts. The plan for new regulation could require Berkshire to post billions of dollars if there is no exemption for previously written contracts involving stronger companies, said David Sokol, one of Buffett’s top lieutenants, in an interview yesterday.
Clinton Team Should Have Done More on Derivatives, Gensler Says. Commodity Futures Trading Commission Chairman Gary Gensler said President Bill Clinton’s administration “ought to have done more” in regulating the derivatives market “to protect the American public.” “Looking back now, knowing what we know now -- and a lot has developed over the last 10 years -- I think we ought to have done more,” Gensler said in an interview on Bloomberg Television’s “Conversations with Judy Woodruff,” airing this weekend. “Some of the basic assumptions about these marketplaces have proved out to be wrong.” Gensler was part of the Treasury Department from 1997 to 2001, a period when Secretary Robert Rubin and his successor, Lawrence Summers, along with Federal Reserve Chairman Alan Greenspan, pushed to keep derivatives markets outside the scope of federal regulators. Bankers “have a point of view because they want to protect their market,” Gensler said. “There’s five large financial firms that are concentrated in this market, and they benefit and earn billions of dollars for their shareholders.” U.S. commercial banks held derivatives with a notional value of $212.8 trillion in the fourth quarter, according to the Office of the Comptroller of the Currency. The five U.S. banks with the biggest holdings of derivatives -- a group that includes Goldman(GS), JPMorgan Chase & Co.(JPM) and Bank of America Corp.(BAC) -- hold $206.2 trillion, or 97 percent, of that total, the comptroller’s office said. “One thing I can confirm is that Wall Street has had many of their people -- lobbyists, and their people advocating against key parts of this reform,” Gensler said. “Sometimes I see them as I’m going into a senator’s office and somebody’s coming out. Sometimes I see their e-mails, so I can confirm that they are very skeptical about some of the parts of this.”
Train Carrying North Korea Leader May Be in China, Yonhap Says. A North Korean train, which may be carrying leader Kim Jong Il, arrived at the Chinese border town of Dandong, Yonhap News agency reported. The train arrived at about 5:20 a.m. local time, Seoul- based Yonhap reported. South Korea’s YTN news channel also reported the arrival of the train, which it said is likely to be carrying Kim. The trip, if confirmed, marks Kim’s first visit outside the country in four years. It comes amid heightened tensions on the Korean peninsula, with speculation North Korea may be responsible for the sinking of a South Korean naval ship on March 26. China, North Korea’s largest trading partner and its main political ally, also hosts the six-nation talks on North Korea’s nuclear weapons program.
Asia Sovereign Risk Index Starts as Government Debt Focus Grows. Asia’s newest bond risk benchmark and only purely sovereign index begins trading tomorrow as European credit downgrades sharpen investor focus on government debt.The Markit iTraxx SovX Asia Pacific index will track credit-default swaps on debt of China, Malaysia, Thailand, South Korea, Vietnam, the Philippines, Indonesia, Japan, Australia and New Zealand. Each nation will be equally weighted and the index will be traded in U.S. dollars with a five-year maturity.
BHP(BHP), Rio(RTP) Shares Drop on Australian Mine 'Super' Tax. BHP Billiton Ltd. and Rio Tinto Group, led declines in mining stocks in Sydney trading on concern Australia’s plans to impose the world’s heaviest tax regime on resource companies will cut billions of dollars from profits. BHP and Rio fell the most in 10 months after Australia announced the so-called super tax yesterday. The 40 percent tax on resource profits will start from 2012 and raise A$12 billion ($11 billion) in its first two years. BHP, with 51 percent of its assets in Australia, said taxes on its operations there will increase to 57 percent in 2013 from 43 percent now. “These proposals seriously threaten Australia’s competitiveness, jeopardize future investments and will adversely impact the future wealth and standard of living of all Australians,” BHP’s Chief Executive Officer Marius Kloppers said in an e-mailed statement. Australia, the world’s biggest iron ore and coal exporter, is now the most highly taxed mining nation, reducing its competitiveness, Citigroup Inc. said. The move may reduce BHP’s earnings by 17 percent and Rio’s by 21 percent in 2013, UBS AG said today in a report. “It’s a worst-case scenario,” Citigroup mining analyst Craig Sainsbury said. Mining companies will be taxed about 58 cents for every dollar of earnings, compared with 35 cents before the new regime, he said. The resource profits tax is on top of corporate tax and companies payments of state royalties will be rebated under the new regime. Resource mergers and acquisitions may “dry up” because of the uncertainty created by the proposed changes, Sainsbury said. This is “bad news for mid-cap Aussie miners,” he said. The government runs the risk of “taking away from Australia the strongest industry we have and the one that saved us from the global financial crisis,” Keith De Lacy, chairman of Brisbane-based Macarthur, the world’s largest producer of pulverized coal, said yesterday. “Always 50 percent of our net profits went into development and exploration and so much of that is going now so obviously we’ll grow slower.” “It is not the right solution and will ensure Australian commodity exports become less competitive globally and investment in Australia is reduced,” Charlie Aitken, director of Southern Cross Equities Ltd., said today in a report.
Copper Falls to Seven-Week Low on Cocern China Demand Slowing. Copper dropped to a seven-week low in New York after China ordered banks to set aside more deposits as reserves for a third time this year, fueling concern the lending restrictions may damp demand for raw materials. Copper for May delivery on the Comex in New York fell 1.3 percent to $3.305 a pound, the lowest price since March 15, and traded at $3.3095 at 10:25 a.m. in Singapore.“The commodities that are relating to Chinese growth, I would avoid for the time being,” said Marc Faber, the publisher of the Gloom, Boom and Doom report. “The symptoms of a major bubble are all there.” Futures also declined after Shanghai copper stockpiles increased last week to the highest level since at least 2003 and as the dollar advanced against a basket of six currencies today, reducing the appeal of commodities as alternative investments.
United Parent UAL, Continental Approve Ailine Merger. United Airlines parent UAL Corp. and Continental Airlines Inc. agreed to merge in a stock swap valued at $3.7 billion that would create the world’s biggest carrier, people with knowledge of the situation said.
How to Avoid a 'Bailout Bill'. A new bankruptcy process is the right way to deal with failing financial institutions.
New Century Shipbuilding Cuts IPO Size Due to Eurozone Crisis - Source. China's New Century Shipbuilding Ltd. has slashed its initial public offer size by more than half as market conditions turned adverse due to the ongoing crisis in the euro zone, a person familiar with the situation said Saturday.
'No Big Deal' Defense. Among the defenses Goldman Sachs Group Inc.(GS) has laid out in response to the federal government's civil-fraud lawsuit against it is this: John Paulson was no big deal in early 2007. A more-nuanced picture of Mr. Paulson's importance to Goldman, however, emerges in interviews with people familiar with the hedge fund and the bank, and emails released by a Senate subcommittee. These emails suggest that in 2007 some Goldman employees were eager for his business and eventually came to respect him as the lead housing bear. "He's definitely the man in this space, up 2-3 bil on this trade," said an email from Joshua Birnbaum, a top Goldman Sachs trader, in July 2007, about three months after the bank struck the deal now under SEC scrutiny. "We were giving him a run for his money for a while but now are definitely #2," suggesting Paulson & Co.'s success on the trade was exceeding Goldman's. Goldman efforts to craft the 2007 deal for Paulson & Co. has put into focus the relationship between Wall Street's most elite bank and one of the world's most successful hedge funds, now managing $33 billion. Interviews with people familiar with the firms, emails and documents suggest that Goldman and Paulson & Co. became closer around the time of this trade.
Job Cuts at ABC Leave Workers Stunned and Downcast. If “Good Morning America” or “World News” look any different in the coming weeks, it might be because ABC News is employing nearly 400 fewer people.
Who Knew Bankruptcy Paid So Well? MORE than $263,000 for photocopies in four months. Over $2,100 in limousine rides by one partner in one month. And $48 just to leave a message. Explanations for these charges? Priceless. The lawyers, accountants and restructuring experts overseeing the remains of Lehman Brothers have already racked up more than $730 million in fees and expenses, with no end in sight. Anyone wondering why total fees doled out in the Lehman bankruptcy alone could easily touch the $1 billion mark merely has to look at the bills buried among the blizzard of court documents filed in the case. They’re a Baedeker to the continuing bankruptcy bonanza, a world where the meter is always running.
Greece Takes Its Bailout, but Doubts for the Region Persist. Analysts warned that Greece had not yet solved its fundamental problems and that other sovereign debt crises could arise as lenders and market speculators turned their attention to a handful of similarly vulnerable nations across southern Europe. “The immediate impact may be soothing, but the inflammation will soon show up again,” said Edward Hugh, an economist in Barcelona who writes for the influential Fistful of Euros blog. “My feeling is the rot has now gone too far.”
Where Would We Be Without Offshore Oil?All the oil spilling into the Gulf of Mexico would not fill the gap between US production and demand. Econbrowser's James Hamilton posted this chart as a reminder of why we're drilling miles below the Gulf.
Government Passes the Buck in Goldman Sachs(GS) Fiasco. It’s hard to say which side looked worse in last week’s Goldman Sachs show trial. You had the suits from New York, squirming before the Senate inquisitors. And you had the politicians, preening themselves as guardians of financial rectitude — a display far from convincing. The courts will decide whether Goldman Sachs was guilty of fraud. The main purpose of last week’s spectacle was to deflect much of the blame for the crisis from the political class to Wall Street. Yet bankers didn’t set the crisis in motion. Washington did. The genesis of the debacle was a campaign, sustained over many years, to extend homeownership to people who manifestly could not afford it. Last year, the House Committee on Oversight and Government Reform issued the following findings: “The housing bubble that burst in 2007 and led to a financial crisis can be traced back to federal government intervention in the U.S. housing market intended to help provide homeownership opportunities to more Americans.… Government intervention … created a nexus of vested interests — politicians, lenders and lobbyists — who profited from the ‘affordable’ housing market and acted to kill reforms.… The ultimate effect was to create a mortgage tsunami that wrought devastation on the American people and economy.” In the late 1990s, Fannie Mae and Freddie Mac — the two government-sponsored mortgage giants — began buying up and guaranteeing subprime mortgages on a vast scale. By 2008, Fannie and Freddie held or guaranteed $1.6 trillion in dodgy loans, for which the taxpayers are now on the hook. Alarms had been raised earlier, to no effect.
McDonald's Corp.(MCD) franchises may spend $55,000 per restaurant annually because of new U.S. health-care legislation, citing an analyst survey. Costs from the health-care law would drain 15% to 20% of a restaurant's profit, Crain's said, citing a survey of franchisees by Mark Kalinowski, an analyst at Janney Capital Markets in New York. Franchises may raise prices or spend less on renovations as costs increase, Crain's said.
Chicago Tribune:
Kraft(KFT), Coke(KO) Move to iVend. The National Automatic Merchandising Association show, an annual three-day summit on vending machines, just wrapped at McCormick Place, and the two machines undoubtedly covered in the most fingerprints were from Kraft and Coca-Cola, and both, quite intentionally, resembled large iPhones. Instead of an array of plastic-wrapped foods behind a plastic window, Kraft's Diji-Touch resembles the menu on an iWhatever and offers images of those chips or candy bars. Tap it, the image enlarges. Brush the screen, the item swivels, allowing a peek at ingredients or nutritional information. "For 20 or 30 years nothing much new has happened with vending machines," said Kelly Brennan, a Kraft marketing manager. "This is the next step."
Pakistani Taliban Promise US Attacks in New Video. A monitoring group says the Pakistani Taliban released a video — apparently dated early April — of their leader promising an attack on major U.S. cities "in some days or a month."The video is the second message purportedly from the militant network that has been discovered following an attempted weekend car bombing in New York City. It does not specifically mention that attack. Militant chief Hakimullah Mehsud says he is speaking on April 4 of this year, which would bolster recent reports that he did not die of a U.S. missile strike in January. IntelCenter, which keeps track of militant media messages, says Monday that the nearly 9 minute video appears credible.
Financial Times:
Hedge Funds Begin to Restructure Fee System. What is a hedge fund? Some say the defining characteristic is the “2 and 20” fee structure, whereby investors typically pay annual charges of 2 per cent of assets under management and 20 per cent of returns. Funds of hedge funds usually layer “1 and 10” on top of this, claiming this pays for the value added by their manager selection and in some cases access to desirable hedge funds. Although this structure has been remarkably resilient, it is finally showing the strain. Just 38 per cent of global hedge funds surveyed by alternatives information provider Preqin still fit into the traditional model. Fees are also coming under downward pressure – the mean management fee in December 2009 was 1.65 per cent, with the median at 1.5 per cent. “As institutional investors find their voice, funds are having to be more flexible in how they charge,” says Amy Bensted, head of hedge fund research at Preqin. Not only are managers lowering their fees officially, they are open to negotiations of special terms for investors. “There’s a lot of individual changes in negotiations between investors and hedge fund managers,” says Ms Bensted. “It probably happens more than outsiders can be aware of.”
TimesOnline:
Vote of Confidence. The Conservatives offer an optimistic vision for the renewal of Britain. The electorate has made a call for change and they deserve the chance to answer it. The Times has not endorsed the Conservative Party at a general election for 18 years. For far too much of that time, the Conservative Party turned inward and vacated the ground on which British electoral victory is won — a commitment to the prosperity and liberty fostered in a free-market economy and a sense of justice in an open and tolerant society. Tony Blair’s Labour Party took up the promise of modernity, through its commitment to enterprise and the courage to stand tall in the world. Sadly, over the past 13 years that promise has faded. We all know that Britain can do better: it is surely time to regain our optimism.
The Independent:
Clients Prepare to Sever Goldman(GS) Ties. Capricorn Investment Group, one of the world's biggest family offices, could break its relationship with Goldman Sachs following accusations by the US financial watchdog that the firm misled clients over mortgage trading. The California-based firm is the first big client known to be reviewing ties with the investment bank in the wake of the fraud allegations which stunned the financial world, but dozens of others are said to be considering their relationship. Capricorn, headed by Stephen George, a former Goldman banker, manages around $7bn for its high-profile investors, which include the former US vice-president, Al Gore. The firm's executives are understood to be so angry with Goldman that they are deciding whether to continue using the firm for business transactions.
Bild am Sonntag:
German Chancellor Angela Merkel said the European Union should be able to temporarily revoke voting rights from member states who violate deficit limits, citing an interview. Merkel, calling for "drastic" consequences after the Greek debt crisis, said sanctions for violating euro stability rules need to be changed.
The majority of Germans oppose giving financial aid to Greece and call such support "wrong," citing an Emnid survey. The survey showed that 56% are against giving aid and 67% think the euro will have less stability in a year.
Neue Zuercher Zeitung:
Credit Suisse Group AG Chief Investment Officer Stephan Keitel doesn't rule out a spreading of the Greek contagion, citing an interview.
Focus:
The German government wants "radical" changes to the European stability and growth package and is examining options for the voluntary and compulsory exit of member states from the euro zone. The Finance Ministry commissioned a legal opinion in mid-April that should be available next week. The government also wants to enable debt-stricken euro zone members to go through an orderly insolvency process. In such cases, creditors such as banks would be force to forego some of their claims and the country would be required to carry out a reform program.
China will increase its crack down on "harmful" Internet sites, citing State Council Information Office director Wang Chen.
Yonhap News:
S. Korean Defense Minister Vows 'Punitive Action' Against Ship Sinking. South Korea's defense chief said Saturday some "punitive" action ought to be taken against those responsible for last month's sinking of a warship that is widely believed to be caused by a North Korean attack. South Korea has not officially blamed anyone for the March 26 sinking of the 1,200-ton Cheonan near the border with North Korea that left 46 sailors killed or missing, but suspicion has grown of the North's involvement.
Personal Income for March is estimated to rise +.3% versus unch. in February.
Personal spending for March is estimated to rise +.6% versus a +.3% gain in February.
The PCE Core for March is estimated unch. versus unch. in February.
10:00 am EST
ISM Manufacturing for April is estimated to rise to 60.0 versus a reading of 59.6 in March.
ISM Prices Paid for April is estimated at 75.0 versus 75.0 in March.
Construction Spending for March is estimated to fall -.3% versus a -1.3% decline in February.
5:00 pm EST
Total Vehicle Sales for April are estimated to fall to 11.4M versus 11.77M in March.
Upcoming Splits
(ASA) 3-for-1
(SLGN) 2-for-1
Other Potential Market Movers
The Deutsche Bank Health Care Conference, RBC Capital Markets Financial Institutions Conference, (FPL) analyst conference and the (RDWR) analyst day could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the week.
BOTTOM LINE: I expect US stocks to finish the week modestly lower on terrorism fears, rising financial sector pessimism, increasing eurozone sovereign debt worries, profit-taking, rising oil prices, China bubble concerns and more shorting. My intermediate-term trading indicators are giving mixed signals and the Portfolio is 75% net long heading into the week.
