North American Investment Grade CDS Index 102.45 bps -21.08%
European Financial Sector CDS Index 118.48 bps -27.84%
Western Europe Sovereign Debt CDS Index 119.0 bps -26.84%
Emerging Market CDS Index 241.23 bps -17.87%
2-Year Swap Spread 28.0 -10 bps
TED Spread 28.0 -3 bps
Economic Gauges:
3-Month T-Bill Yield .15% +3 bps
Yield Curve 268.0 +7 bps
China Import Iron Ore Spot $175.50/Metric Tonne +.29%
Citi US Economic Surprise Index +14.70 +3.2 points
10-Year TIPS Spread 2.24% +9 bps
Overseas Futures:
Nikkei Futures: Indicating +140 open in Japan
DAX Futures: Indicating -42 open in Germany
Portfolio:
Slightly Higher: On gains in my Biotech, Retail, Medical and Tech long positions
Disclosed Trades: Covered some of my (IWM), (QQQQ) hedges and some of my (EEM) short
Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is bullish as equities trade substantially higher on decent volume despite a very muted bounce in the euro. On the positive side, Homebuilding, Steel, Oil Tanker, Coal and Airline stocks are especially strong, rising 6.0%+. The Spain sovereign cds is falling -31.77% to 162.90 bps and the eurozone investment grade cds index is plunging -22.2% to 94.66 bps, which are large positives. Oil is only 2.3% higher despite its recent decline and huge equity move higher. This is likely due to continuing worries over slowing global demand and the muted bounce in the euro. On the negative side, Telecom, Gold, Defense, Utility, Oil Service, Ag, Medical, Biotech, Drug and Education shares are underperforming today. The Shanghai Composite continues to trade poorly, just barely rising last night. The Japan sovereign CDS is up +9.2% today to 76.75 bps. The Libor-OIS spread is rising another +1 bp today to 19.0 bps. The 30-day asset-backed commercial paper yield is rising 2 bps to 31 bps, which is the highest since Dec. 4, 2009. Today's equity market reaction to Europe's actions is about what I would have expected, but the small rise in the euro is a large red flag, especially given how short traders are positioned against the currency. Part of the market's recent sell-off was related to the euro's disorderly decline. This bares close monitoring. Over the longer-term I still expect more weakness in the euro and significant debt-related issues to resurface. Given I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less sovereign debt fear, diminishing financial sector pessimism and bargain-hunting.
Stocks, Commodities, Greek Bonds Rally on European Loan Package. Stocks rallied around the world, sending the MSCI World Index up the most in 13 months, while Greek, Spanish and Portuguese bonds soared after European policy makers announced an almost $1 trillion loan package to end the region’s sovereign-debt crisis. The euro pared an earlier rally. The MSCI World gauge of stocks in 23 developed nations jumped 4.5 percent at 1:04 p.m. in New York, while the Standard & Poor’s 500 Index rose 3.9 percent and Spain’s IBEX 35 Index surged a record 14 percent.
Greece May Have Rating Lowered to Junk, Moody's Says. Greece may have its credit rating lowered to junk within the next month, Moody’s Investors Service said, citing the country’s “dismal” economic prospects. “We expect to conclude our review in the coming four weeks,” Moody’s, which currently has the nation’s A3 rating on review for a downgrade, said in a report today. “The migration will most likely be substantial, probably within the Baa range; but an adjustment to below investment grade is also possible.” Portugal’s rating, which is also on review for a downgrade, will probably be lowered one level to Aa3 from Aa2, though an “adjustment” of two steps to A1 can’t be ruled out, Moody’s said. No “significant” rating action is likely “in the short run” for Ireland, which has a negative outlook on its Aa1 rating, the company said. Cutting Greece to junk would be a downgrade of at least four steps. Standard & Poor’s already rates Greece BB+, one level below investment grade. A downgrade “will depend on developments in the Greek economy once the fog of financial panic, support-mobilization and street demonstrations dissipates,” Moody’s said.
Exchanges Seek Faster Circuit Breakers After May 6 Stock Plunge. The biggest U.S. equity exchanges said they must align trading rules to prevent conflicting systems from repeating the failures of handling buy and sell orders that worsened last week’s rout. Circuit breakers designed to slow trading or shut markets during volatile periods may have prevented the biggest losses on May 6, when the Dow Jones Industrial Average fell 998.5 points intraday, according to Bats Global Markets Inc., Direct Edge Holdings LLC and White Cap Trading LLC. The Securities and Exchange Commission is studying changes to calm markets when prices tumble, people familiar with the matter said May 7.
Euro Rally Temporary, Will Resume Decline, UBS Says. The euro’s rally after European policy makers announced a loan package worth nearly $1 trillion as well as government-bond purchases will be “temporary,” according to UBS AG, the second-largest currency trader. Policy in the region is becoming “very unfavorable,” said Mansoor Mohi-uddin, Singapore-based global head of currency strategy at UBS. The European package may drive a “temporary rally” in the euro toward $1.35 before it resumes its decline, said Mohi- uddin. “The euro will definitely hit what we call its long-term fair value at $1.20 and it may easily overshoot that if difficulties in Europe persist,” he said. “The policy mix in Europe is becoming very unfavorable to the currency.”
Default Swaps Tumble After EU Goes 'All In': Credit Markets. Credit markets rallied around the world after the European Union agreed on an aid package worth almost $1 trillion to halt the sovereign debt crisis. “There has been a poker game going on between the markets and the EU,” said Gary Jenkins, head of credit strategy at Evolution Securities Ltd. in London. “This is probably reaching a climax as the EU has just gone ‘all in.’”Credit-default swaps on the Markit iTraxx Europe Index of 125 investment-grade companies tumbled 32 basis points to a mid- price of 101 as of 4:46 p.m. in London, with banks leading the biggest ever one-day decline, according to Markit Group Ltd. Swaps on Greece fell 358.5 basis points to 557, Portugal dropped 178 to 247 and Spain declined 82.5 to 156 basis points, according to CMA DataVision. The Markit CDX North America Investment Grade Index, an indicator of perceived credit risk linked to 125 companies in the U.S. and Canada, fell 17.3 basis points to a mid-price of 101.4 basis points as of 11:49 a.m. in New York, Markit prices show. Swaps on JPMorgan Chase & Co., the second-biggest U.S. bank by assets, fell about 10 basis points to 105, according to broker Phoenix Partners Group. Contracts on Goldman Sachs Group Inc., the bank facing fraud allegations from the U.S. Securities and Exchange Commission, fell 18 basis points to a mid-price of 195 basis points, Phoenix prices show. The Markit iTraxx Financial Index of credit-default swaps on 25 European banks and insurers fell 42 basis points to 135 basis points and earlier dropped to 119, the biggest one-day drop ever, JPMorgan prices show. That’s still only the lowest in a week and is higher than the 87 basis-point level on April 13. The difference between three-month dollar Libor and the overnight indexed swap rate, the so-called Libor-OIS spread that’s a barometer of the reluctance of banks to lend, jumped to 19.13 basis points today from 18.11 basis points on May 7. The spread, which earlier reached 20 basis points, is more than three times the 6 basis-point spread on March 15 and is at the highest levels since August. “Credit investors should not overlook that this is more of a sovereign bailout rather than a private-sector bailout,” Philip Gisdakis, the head of credit strategy at UniCredit SpA in Munich, wrote in a note to investors. “The austerity measures that will be part of the program will have a negative impact on corporate spreads.”
Fannie Mae Seeks $8.4 Billion in New Aid After Loss. The company lost $11.5 billion in the first three months of this year, it said today in a Securities and Exchange Commission filing. Fannie Mae had posted $136.8 billion in losses in the preceding 10 quarters, and the new aid request would bring its total draw from the Treasury to $84.6 billion since April 2009. Even with the assistance, Fannie Mae increased foreclosures to almost 62,000 homes from about 47,000 in the prior quarter, according to the filing. The company’s foreclosure rate increased and its inventory of homes grew from $8.5 billion to $11.4 billion during the first quarter. “We expect our foreclosures to increase in 2010 as a result of the adverse impact that the weak economy and high unemployment have had and are expected to have on the financial condition of borrowers,” the company said in a press release. Credit-related expenses, including home-loan delinquencies and defaults, increased to $5.1 billion in the first quarter from $4.1 billion three months earlier, the company said. Non- performing loans were $223.9 billion as of March 31, up from $216.5 billion at the end of December.
Dollar Libor Holds Near 9-Month High After EU Aid. The rate banks say they pay for three-month loans in dollars stayed near the highest level in about nine months on concern an almost $1 trillion European loan plan may not be enough to restore confidence in markets. The London interbank offered rate, or Libor, for such loans slipped to 0.421 percent today, from 0.428 percent on May 7, the highest since Aug. 17, according to the British Bankers’ Association. The Libor-OIS spread, a gauge of banks’ reluctance to lend, widened more than 1 basis point to 19.2 basis points.
EU Hedge-Fund Legislation Vote is Postponed, Lawmaker Says. European Union lawmakers postponed a vote on hedge-fund legislation that would have stopped EU investors from sending money to funds based in off-shore tax havens. Members of the European Parliament’s Economic and Monetary Affairs Committee postponed a scheduled vote that could have seen European authorities bar hedge funds from countries that don’t meet tax disclosure rules. The parliament will now vote on the proposals May 17, said Sharon Bowles, the chairwoman of the committee. “More time is needed” to resolve differences, Bowles told the lawmakers at a hearing today. The vote was postponed to give “more consideration” to the Parliament’s legal affairs committee, the EU institution later said in a statement.
Kocherlakota Says Bailouts Are Inevitable, Backs Taxes on Firms. Narayana Kocherlakota, the Federal Reserve’s newest policy maker, said financial firms should be taxed as a way to limit the size of future bailouts because legislation won’t eliminate the prospect of such rescues. “Bailouts are inevitable,” he said in the text of a speech today in Minneapolis. “Policy makers inevitably resort to bailouts even when they have explicitly resolved, in the strongest possible terms, to let firms fail” because governments can’t risk a systemic collapse. He suggested imposition of a tax based on the government’s estimated, discounted cost for bailing out a firm any time over the next one to 30 years.
China's Stocks Rebound After Briefly Entering a Bear Market. China’s stocks rebounded after briefly entering a bear market on speculation a slowdown in the economy may delay increases in borrowing costs and a Europe loan package will keep the region’s credit crisis from spreading. The Shanghai Composite Index added 10.38, or 0.4 percent, to 2,698.76 at the close after falling as much as 1.6 percent. The measure briefly slid more than 20 percent from the close of 3,338.66 on Nov. 23, a sign analysts say is a bear market.
Goldman Sachs(GS) Has First Quarter With No Trading Loss. Goldman Sachs Group Inc.’s traders made money every single day of the first quarter, a feat the firm has never accomplished before. Daily trading net revenue was $25 million or higher in all of the first quarter’s 63 trading days, New York-based Goldman Sachs reported in a filing with the U.S. Securities and Exchange Commission today. The firm reaped more than $100 million on 35 of the days, or more than half the time. Trading accounted for 76 percent of first-quarter revenue. The lack of trading losses could add to the perception that Goldman Sachs has an unfair advantage in the markets, said one shareholder. “It will reinforce the heads we win, tails you lose mentality that people think actually exists and promotes the concept of an unfair advantage,” said Douglas Ciocca, a managing director at Renaissance Financial Corp. in Leawood, Kansas, which oversees about $2 billion in assets including Goldman Sachs shares. “It’s too politically charged not to, how is that possible that they only make money?”
N.J. Democrats Want Tax on Rich, Christie Seeks Curbs. New Jersey's Democratic lawmakers called for an income-tax surcharge on residents who earn at least $1 million a year, as Republican Governor Chris Christie proposed limits on spending by state and local government.
Chavez's Threats May Make Economy Worse, Ramos Says. Venezuelan President Hugo Chavez’s threats to stem currency speculation will likely deepen an economic slump and force the government to spend more dollars in the foreign-exchange market to slow a rout in the bolivar, Goldman Sachs Group Inc. said. “Chavez continues to misdiagnose the problem and feels the solution is more socialism and less speculation,” Goldman Sachs economist Alberto Ramos said in a telephone interview from New York.
Wall Street Journal:
Real Estate's Far Reach Will Continue to Pinch. Highflying property prices drove the most-recent economic boom, and a collapse in real-estate values hammered it back down. Now, as the economy struggles to regain strength, real estate is expected to continue to act as a brake, rather than an accelerator. Despite clear signs of revival in the larger economy, including upturns in manufacturing and consumer spending, the nation's market for homes and office buildings remains mired in foreclosures and oversupply. That imbalance will be worked out over time, but in the meantime, it is slowing the recovery in myriad ways. Here's how it breaks down:Less construction means fewer jobs. Home owners who once felt rich are feeling poorer. Small businesses aren't borrowing as much. Lower real-estate values translate into lower property taxes, crimping government spending.
Skype to Offer Group Video Chat, for a Fee. Internet calling service Skype Ltd. unveiled a new group video chat service and subscription plans, as it builds out its strategy of offering a free service that makes money by charging for extras. Skype will next week launch a free trial of an upgrade to its PC-based calling software that lets up to five people make a video call at the same time. The trial will be free, but the company will begin charging for the group feature — one of its users' biggest requests — later in the summer.
Fed's Swap Decision Could Ratchet Up Political Pressure. The U.S. Federal Reserve's decision to reopen swap lines with the European Central Bank and central banks in Japan, Switzerland, England and Canada puts it in a delicate political position. The U.S. Congress is in the midst of rewriting a financial regulatory overhaul that could rein in the Fed amid sharp criticism of its actions before and during the financial crisis. The overseas lending program it reopened Sunday in response to pleas from Europe has been among the programs lawmakers have criticized, with some suggesting it is bailout out foreign banks and other saying the Fed is too secretive about details. Under the swap lines, the Fed makes loans to foreign central banks, which in turn use the funds to make U.S. dollar loans to financial institutions in their home markets. Fed officials say they face little risk in these loans, because their counterparties are central banks and not foreign financial institutions.
Obama Nominates Kagan to Seat on Supreme Court. President Barack Obama announced the nomination of Solicitor General Elena Kagan to the Supreme Court, calling her a "trailblazing leader" who could build consensus across ideological lines. If confirmed by the Senate, Ms. Kagan would be the first justice in nearly 40 years to join the court without previous experience as a judge.
CNBC:
Housing Prices to Rise 3-5% This Year: John Paulson. John S. Paulson, the hedge fund manager who made $15 billion shorting the real estate market, said Monday that he expects housing prices to rise between 3 percent and 5 percent this year and another 8 to 12 percent in 2011. He also said he expects a strong V-shaped economic recovery.
Fox News:
Paulson to Close Biggest Funds to New Investors. Paulson & Co. said Monday that it will close the firm's largest hedge funds to new investors later this year. The Advantage funds, which oversee roughly $19 billion in assets, will only allow new investors in if current investors redeem, creating space, John Paulson, head of Paulson & Co., explained during a conference call with clients. Paulson & Co.'s other hedge funds - the Credit, Merger, Recovery and Gold funds - aren't affected and will remain open to new investors, Paulson added.
NY Times:
Banks Lobby Against Ban on Derivatives Trading. Cory Strupp, who represents Wall Street in Washington, spent the last six months lobbying for more than two dozen changes in the derivatives chapter of the Senate’s financial legislation. He has spent the last two weeks focused on one: eliminating a new provision that would require banks to leave the lucrative business of derivatives trading, Binyamin Appelbaum and Eric Lichtblau report in The New York Times.
Business Insider:
Moody's(MCO) CEO Dumped Shares The Day SEC's "Well's Notice" Arrived -- And So Did Buffett!. We suspect Moody's investors will also be interested to know that CEO Raymond McDaniel dumped 100,000 shares of stock at $29 a share the day the Wells Notice arrived. And that Berkshire Hathaway (BRK) sold ~678,000 shares that day and another ~300,000 or so in the week that followed. Did Raymond McDaniel and Berkshire know about the Wells Notice when they sold their stock? If so, couldn't this be trading while in possession of material non-public information?
BP(BP) Says Oil Spill Costs $350 Million So Far, Shares Hit. Oil major BP Plc said the oil spill in the Gulf of Mexico had cost it $350 million so far, suggesting the final bill could be much higher than many analysts predicted and sending its shares to a six-month low.
TV2:
The Danish People's Party broke with Denmark's ruling coalition, to which it provides parliamentary support, over European finance ministers' package to strengthen the euro, calling it "unacceptable," citing Pia Adelsteen, a spokesman for the People's Party. Getting rid of the euro and allowing countries to devalue their old currencies is the best solution to the current crisis, Adelsteen said.
EU Crafts $962 Billion Show of Force to Halt Euro Crisis. European policy makers unveiled an unprecedented loan package worth almost $1 trillion and a program of bond purchases as they spearheaded a global drive to stop a sovereign-debt crisis that threatened to shatter confidence in the euro. Jolted into action by last week’s slide in the currency and soaring bond yields in Portugal and Spain, the 16 euro nations agreed to offer financial assistance worth as much as 750 billion euros ($962 billion) to countries under attack from speculators. The European Central Bank will counter “severe tensions” in “certain” markets by purchasing government and private debt. “The message has gotten through: the euro zone will defend its money,” French Finance Minister Christine Lagarde told reporters in Brussels early today after the 14-hour meeting. Under pressure from the U.S. and Asia to stabilize markets, the European governments gambled that the show of financial force would prevent a sovereign-debt crisis and muffle speculation that the 11-year-old euro might break apart. Under the loan package, euro-area governments pledged 440 billion euros in loans or guarantees, with 60 billion euros more in loans from the EU’s budget and as much as 250 billion euros from the International Monetary Fund. “While the ECB’s intervention might attract bad press regarding its mandate and independence, we believe that this was necessary to short circuit the negative feedback loop which was getting more and more threatening for the global economy. ” The ECB also reactivated unlimited fixed-rate offerings of three month loans, a key tool in the ECB’s efforts to fight the credit crisis. It will also reactivate dollar swaps with the Federal Reserve.
Fed Restarts Currency-Swap Tool With ECB Amid Crisis. The U.S. Federal Reserve said it will restart its emergency currency-swap tool by providing as many dollars as needed to central banks in Europe, the U.K. and Switzerland to help keep Europe’s sovereign-debt crisis from spreading to other markets. The swaps with the ECB, Bank of England and Swiss central bank will allow them to provide the “full allotment” of U.S. dollars as needed, the Fed said today in a statement in Washington. A separate swap line with the Bank of Canada will support as much as $30 billion, the Fed said. The swaps were authorized through January 2011. The Fed’s swaps come at a time of increasing political scrutiny. Congress could ask why the U.S. central bank is expanding the supply of dollars to help smooth disruptions caused by fiscal imbalances in Europe. Senator Bernard Sanders, a Vermont independent, wants the Government Accountability Office to look into Fed lending facilities during the crisis, including swap lines with foreign central banks, such as the $20 billion facility the Fed opened with the ECB in December 2007. A vote on the Sanders amendment could come as soon as May 11 as Congress proceeds on the most sweeping overhaul of financial regulations since the Great Depression. “Many members of Congress are deeply suspicious of the Fed’s interventionist instincts,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. “Bailing out Wall Street caused enough resentment; appearing to bail out Greece would be even more problematic.” “The Fed cannot afford to rile up its congressional critics while the financial reform bill is still in play,” Crandall said before tonight’s announcement.
Bank Funding Crunch Deepens as Swap Rates Soar: Credit Markets. Europe’s government debt crisis is starting to infect the bank funding system, driving borrowing costs higher from Asia to the U.S. and threatening to slow the global economic recovery. The interest rate that financial companies charge each other for three month loans in dollars is the highest since August, while traders are paying record amounts to hedge against losses in European bank bonds. Yields on all types of corporate bonds rose last week by the most relative to government debt since Lehman Brothers Holdings Inc.’s bankruptcy in September 2008, according to Bank of America Merrill Lynch indexes. European Union finance ministers pledged to stop a sovereign debt crisis from shattering confidence in the euro as they held an emergency summit over the weekend to hammer out a lending mechanism for deficit-stricken nations. The sovereign debt crisis may end up costing governments more than $1 trillion, according to credit investment firm Aladdin Capital Holdings LLC in Stamford, Connecticut, with knock-on effects on banks and corporates. “Whether the markets completely unravel depends on whether politicians can stabilize the peripheral government market,” said James Gledhill, who helps manage about 58 billion pounds ($85 billion) as head of fixed income at Henderson Global Investors Ltd. in London. “The tail risk is the stress on banks which stops them from lending to corporates and feeds through to become a real economy problem.”
Merkel's CDU Gets Worst Post-War Result as Greece Derails Vote. Chancellor Angela Merkel’s party plunged to its worst result since World War II in Germany’s most populous state, losing control of parliament’s upper house in Berlin, as voters punished her reversal on aid for Greece. With Merkel’s Christian Democrats unexpectedly beaten into second place in a state election in North Rhine-Westphalia, the way is open for the opposition Social Democrats to take control of the state government in Dusseldorf, television projections showed. If confirmed, that would rob Merkel of her majority in the upper chamber, the Bundesrat, undermining her ability to cut taxes and extend the lifespan of nuclear-power plants. Officials in Merkel’s CDU blamed the party’s showing on German loans for Greece of as much as 22.4 billion euros ($28.8 billion) passed by parliament on May 7 in the face of public opposition. “This is a double blow to confidence in Merkel’s party: a rout at regional level that’s sent a huge wave to the national coalition,” Hans-Juergen Hoffmann, managing director of Berlin- based polling company Psephos, said in an interview. “Her own bedrock CDU voters are worried. The crisis is spinning out of control and confidence in her ability to tame it is evaporating.”
Rudd's Approval Rating Falls to Record Low, Sydney Herald Says. Australian Prime Minister Kevin Rudd’s approval rating fell 14 percentage points to 45 percent, its lowest level since he took office in 2007, the Sydney Morning Herald reported, citing a Nielsen poll. Rudd’s Labor party would lose an election if it was held today with voters failing to be won over by his proposal to increase mining taxes, the Herald said.
South Korea may cut imports from North Korea over the March 26 sinking of one of its naval ships and deny the communist nation access to its southern shipping lanes, the JoongAng Illbo reported. Once South Korea confirms North Korea is responsible for the sinking that killed 46 people it will potentially slash purchases of agricultural and fishery goods, citing South Korean government officials it didn't identify. South Korea may also restrict exports of farming tools and other products, it said. South Korea may also resume propaganda broadcasts near the border with North Korea, which the two countries agreed to halt in 2004.
Hedge fund managers and other large speculators increased their bullish bets on gasoline to record highs in the week ended May 4, according to the US CFTC. Long positions in gasoline futures and options outnumbered shorts by 70,742, up 12% from the previous week and the highest since at least 2006. Speculators also raised their bets on crude oil. "They're thinking, 'Let's load up ahead of the summer driving season,'" said Tim Evans, an energy analyst at Citi Futures Perspective in New York. "When I combine this record long position in gasoline, and I look at the Energy Department numbers on surplus inventories, I see a lot of downside potential." Hedge funds, classified as managed money by the CFTC, also increased net-long oil bets just before crude began a 9.2% slump, according to the report. Long positions in futures and options outnumbered short positions by 159,005 contracts, up 5% from the week ended April 27. "Those are the people whose hair is a little greyer and thinner than it was on Monday," Evans said.
CEOs of Biggest Exchanges Called to SEC to Discuss Plunge. The chief executive officers of the biggest U.S. stock markets were called to a meeting at the U.S. Securities and Exchange to discuss last week’s selloff in equities, according to four people familiar with the situation. Duncan Niederauer of NYSE Euronext, Robert Greifeld of Nasdaq OMX Group Inc., Joe Ratterman of Bats Global Markets Inc. and William O’Brien of Direct Edge Holdings LLC will meet with agency officials tomorrow at 10 a.m. in Washington, said the people, who asked not to be identified because the meeting hasn’t been publicly announced. The SEC is considering regulatory changes aimed at slowing trading during periods of cascading prices, even though the agency hasn’t concluded what caused the plunge, two people familiar with the matter said on May 7.
BofA(BAC), Citigroup(C) Estimate U.K. Bonus Tax at $400 Million or More. Bank of America Corp. expects to pay $465 million to cover a U.K. tax on employee bonuses and Citigroup Inc. estimates it will pay about $400 million as the government seeks to soothe public anger over bailout programs.
Slow China Growth to Avoid Overheating, Says Cabinet Researcher. China needs to slow economic growth to below 10 percent to avoid overheating and contain inflation, a cabinet researcher said. “China’s economic growth may slow later this year, which is necessary to avoid overheating,” Liu Shijin, deputy director of the State Council’s Development and Research Center, said at a financial forum in Beijing today. “While the government takes steps to damp asset prices, we should also closely monitor inflation” after record bank lending last year, Liu said. China now faces an “even more complex” environment as the debt crisis adds uncertainty to the global recovery and excessive liquidity in China pushes up asset prices, Liu said. “Where is the ultra-loose monetary policy going? That is like the other shoe that has yet to drop,” said Liu, whose agency advises China’s top policy makers.
SEIU Chief Henry Vows $4 Million to Organize Bank, Grocery Jobs. Mary Kay Henry, elected today as president of the Service Employees International Union, pledged to spend $4 million organizing employees in businesses such as banks and supermarkets. “Working people are facing hardships that we haven’t seen in generations,” Henry said on a conference call with reporters after the executive board picked her to replace Andy Stern. Henry said she has “a fire in her belly” for fighting management interference in labor organizing efforts. Henry said she will fight such efforts by “creating complaints” with the National Labor Relations Board. Henry, 52, takes over the 2.2-million-member union from Stern, who cultivated close ties to President Barack Obama and Democrats in Congress during 14 years as president.
Dubai House Prices Rise; Oversupply Remains an Issue. The completion of a “significant” number of new homes in Dubai later year will further pressure prices that rose 2 percent in the first quarter, Colliers International said. “There will be significant oversupply in the market by the end of the year, so it is anticipated the index will experience fluctuations in value going forward,” Colliers’ regional Director Ian Albert said in the report. “Demand is not expected to match the growth in supply, creating downward pressure on property prices,” according to the document. Dubai’s property prices have slumped more than 50 percent since their peak in mid-2008 as the financial crisis forced companies to dismiss workers.
Freddie Finances Scarier Than Bad Slasher Flick: Kevin Hassett. Freddie Mac’s disclosure that it lost $6.7 billion of taxpayer dollars in the first quarter of 2010, and that bigger losses may follow, suggests the Congressional Budget Office may have been kind in estimating that Freddie and Fannie Mae could gobble up $389 billion in U.S. aid by 2019. The carnage of America’s government-sponsored housing agencies continues. It’s a remake of “A Nightmare on Elm Street,” only Freddy Krueger now goes by Freddie. The hapless victims are played by taxpayers.
Wall Street Journal:
Levin Aims to Ban Banks From Betting Against Customers. Lawmakers are considering legislation that would ban investment banks from betting against their customers in many circumstances, in a further ripple effect for Wall Street from Goldman Sachs's troubles. In a statement to The Wall Street Journal, Sen. Carl Levin (D., Mich.) said he is drafting legislation to prevent conflicts of interest by "prohibiting companies from taking the opposite side of the deal for their own account," at least when they are marketing investments they have created themselves. Mr. Levin and his co-sponsor, Sen. Jeff Merkley (D., Ore.), are aiming to propose an amendment as soon as Monday to the financial-overhaul bill being debated in the Senate.
U.S. Names Pakistani Taliban in Attack on Times Square. The Obama administration on Sunday blamed the Pakistani Taliban for directing the attempted Times Square bombing—providing the firmest accusations yet by U.S. officials and potentially complicating relations with a key ally.
U.S. Considers 'Malfeasance' in Leak. Attorney General Eric Holder on Sunday said he had dispatched Justice Department officials to the Gulf Coast to determine whether there had been any "misfeasance" or "malfeasance" related to the leaking oil rig off the Gulf of Mexico. Mr. Holder, speaking on ABC's "This Week," said he sent the officials to the area to advise him on "what our options are." He said the government's primary focus was on preventing the leaking oil from devastating the coast when it reaches land. Coast Guard Admiral Thad Allen, who is leading U.S. government efforts to tackle the disaster, called it "maddening" that efforts by BP so far to stop the leak have failed. BP tried to lower a containment box over the leaking pipe over the weekend, but that effort has so far not been successful. Adm. Allen, speaking on CBS's "Face the Nation," said officials were now preparing to do something called a "junk shot," where they try to shoot a bunch of garbage into the leak to "clog it up." "It's been used before," he said, adding it wasn't an "exotic type of activity." He said roughly 5,000 barrels of oil continued to leak into the ocean daily, although he added that it was hard to pinpoint an exact amount. Other estimates have put the daily leak rate much higher.
China, India Doubt Climate Deal Can Be Made This Year. Top climate-change officials from China and India expressed pessimism at a Beijing conference this weekend about reaching a binding global deal at a U.N. Climate Summit in Cancun, Mexico, at the end of the year. China hosted the high-profile global-warming forum that brought together key negotiating blocs in the developing world, including its fellow Basic Group members Brazil, South Africa and India. Beijing is trying to strengthen its role as leader of the developing world in climate-change talks after accusations it sabotaged efforts to reach a binding deal at a U.N.-backed summit in Copenhagen last December.
Goldman(GS) Close to Financing Deal for Extended. With a key deadline looming in bankruptcy court, Goldman Sachs Group Inc. is close to a deal to provide $2.2 billion in financing to a group led by Starwood Capital Group in its bid for hotel chain Extended Stay Inc., according to people familiar with the matter. The financing package, whose terms are being finalized, is a sign that big banks like Goldman are trying to flex their muscles in commercial real-estate lending as the market struggles to recover from its worst trough in decades.
Thomson Reuters to Add Financial Video Service. Thomson Reuters Corp. this week will launch a financial video service, the latest of a growing number of news organizations aggressively adding Web-based programming to fill needs they say are unmet by cable news. The product, called Reuters Insider, will be integrated into the news-and-information provider's desktop product that serves a half a million customers in the financial-services industry.
EU Hedge Funds Rules Will Hurt Small Businesses. An open letter to the European Parliament from 700 business owners. Today the Economic and Finance Committee of the European Parliament will vote on the Alternative Investment Fund Management Directive, a law that threatens to restrict access to financing for SMEs across Europe. I write on behalf of nearly 700 co-signatories, the owners and managers of small and medium size enterprises across the EU. SMEs form the bedrock of economic activity. It is from this fertile breeding ground of innovation that the European and international leaders of tomorrow will emerge. In the current environment, long-term and committed sources of finance for such businesses are scarce, but one option is private equity and venture capital. Around 25,000 European businesses benefit from such support. We are therefore increasingly alarmed by proposals within the EU's draft Alternative Investment Fund Management Directive that would prejudice these small businesses. We can see no justification for prejudicing our companies or including them in a directive targeting fund managers. Of particular concern are proposed disclosure obligations for private-equity and venture-backed businesses.
EU's Barnier Calls For Tougher Sanctions On Market Speculators. The European Union's internal market commissioner Sunday called for tougher sanctions on stockmarket speculators. Speaking on French radio Europe 1, Michel Barnier said sanctions against speculators will take various forms "including legal action, when there is proof." "We are ready to increase the sanctions against abnormal speculative action," he said. "Regulatory authorities need to be extremely severe with those that are launching rumors to manipulate stock prices in order to make money on the back of the suffering of the people," Barnier said. "I think that all inquiries made by the European authorities need to be rigorous, fast and coordinated...and the sanctions need to be exemplary," he said, adding that he will discuss the matter during his trip to New York and Washington, D.C., which starts Sunday.
Schumer Leads Pack With Interest Alone. Sen. Charles Schumer's single biggest source of campaign money isn't bankers or lawyers or any other business group. It's his own bank account. The senator has made almost $2.2 million in interest on political donations that he collected years ago. A review of records since Mr. Schumer's last election, six years ago, shows his campaign account earned $2,182,406.27 in interest payments. That's the equivalent of more than 450 individual donors giving the maximum $4,800 amount allowed by law.
ObamaCare's Phony Medicaid 'Deal'. The attorneys general of 13 states recently filed a lawsuit in federal court challenging the constitutionality of the Medicaid portions of the new health law. Given the dismal track record states and individuals have had challenging New Deal social programs, many pundits have concluded their suit will be dismissed out of hand. I wouldn't be so sure.
Bloomberg Businessweek:
Sell Euro Rallies as 3-Month Drop to $1.20 Looms, Barclays Says. Investors should use a rally in the euro to make fresh bets on the currency’s decline toward $1.20 within three months, according to Barclays Capital, the world’s third-biggest foreign-exchange trader. “We remain euro bears,” David Forrester, Singapore-based currency economist at Barclays Capital, wrote in a note today. The agreement means “the ECB will have to play a larger role in terms of keeping monetary policy loose for longer in order to help euro area countries to grow out of their fiscal problems.” “To access the new facilities, countries would need to agree to fiscal consolidation measures,” Forrester wrote. “This tight fiscal/easy monetary policy mix is likely to be negative for euro.”
Ignoring the Elephant in the Bailout. IF you blinked, you might have missed the ugly first-quarter report last week from Freddie Mac, the mortgage finance giant that, along with its sister Fannie Mae, soldiers on as one of the financial world’s biggest wards of the state. Freddie — already propped up with $52 billion in taxpayer funds used to rescue the company from its own mistakes — recorded a loss of $6.7 billion and said it would require an additional $10.6 billion from taxpayers to shore up its financial position. The news caused nary a ripple in the placid Washington scene. Perhaps that’s because many lawmakers, especially those who once assured us that Fannie and Freddie would never cost taxpayers a dime, hope that their constituents don’t notice the burgeoning money pit these mortgage monsters represent. Some $130 billion in federal money had already been larded on both companies before Freddie’s latest request. But taxpayers should examine Freddie’s first-quarter numbers not only because the losses are our responsibility. Since they also include details on Freddie’s delinquent mortgages, the company’s sales of foreclosed properties and losses on those sales, the results provide a telling snapshot of the current state of the housing market. That picture isn’t pretty.
Imam's Path From Condemning Terror to Preaching Jihid. In the weeks after the Sept. 11 attacks, the eloquent 30-year-old imam of a mosque outside Washington became a go-to Muslim cleric for reporters scrambling to explain Islam. He condemned the mass murder, invited television crews to follow him around and patiently explained the rituals of his religion. “We came here to build, not to destroy,” the cleric, Anwar al-Awlaki, said in a sermon. “We are the bridge between Americans and one billion Muslims worldwide.” At first glance, it seemed plausible that this lanky, ambitious man, with the scholarly wire-rims and equal command of English and Arabic, could indeed be such a bridge. CD sets of his engaging lectures on the Prophet Muhammad were in thousands of Muslim homes. American-born, he had a sense of humor, loved deep-sea fishing, had dabbled in get-rich-quick investment schemes and dropped references to “Joe Sixpack” into his sermons. A few weeks before the attacks he had preached in the United States Capitol. Nine years later, from his hide-out in Yemen, Mr. Awlaki has declared war on the United States. “America as a whole has turned into a nation of evil,” he said in a statement posted on extremist Web sites in March. Though he had spent 21 of his 39 years in the United States, he added, “I eventually came to the conclusion that jihad against America is binding upon myself, just as it is binding on every other able Muslim.” His mix of scripture and vitriol has helped lure young Muslims into a dozen plots. He cheered on the Fort Hood gunman and had a role in prompting the attempted airliner bombing on Dec. 25, intelligence officials say. And last week, Faisal Shahzad, who is charged in the attempted bombing in Times Square, told investigators that Mr. Awlaki’s prolific online lectures urging jihad as a religious duty helped inspire him to act.
NY Post:
Feds Probing JPMorgan(JPM) Trades in Silver Pit. Federal agents have launched parallel criminal and civil probes of JPMorgan Chase and its trading activity in the precious metals market, The Post has learned. The probes are centering on whether or not JPMorgan, a top derivatives holder in precious metals, acted improperly to depress the price of silver, sources said. The Commodities Futures Trade Commission is looking into civil charges, and the Department of Justice's Antitrust Division is handling the criminal probe, according to sources, who did not wish to be identified due to the sensitive nature of the information. The probes are far-ranging, with federal officials looking into JPMorgan's precious metals trades on the London Bullion Market Association's (LBMA) exchange, which is a physical delivery market, and the New York Mercantile Exchange (Nymex) for future paper derivative trades.
An FBI Team Arrives in Pakistan to Probe Ties of N.Y. Bomber. An FBI team arrived in Pakistan on Friday as the international probe into the failed Times Square bombing heated up and investigators focused on whether foreign terrorist money helped finance the operation, U.S. and Pakistani officials said. The FBI investigators landed in Islamabad, where the FBI has a legal attache office that works with Pakistani law enforcement and intelligence officers, Pakistani officials said. Pakistani cooperation is considered crucial in nailing down the radical ties of Faisal Shahzad, the U.S. citizen charged in the attempted bombing. Inside the United States, investigators were interviewing people who might have ties to Shahzad, but "no one is subject to imminent arrest," said a senior U.S. law enforcement official, who spoke on the condition of anonymity because the probe is still unfolding.
6 Simple Steps to Fix Wall Street. The first thing you learn when you start looking at Wall Street, which I've been doing for 40 years, is to never trust the salesmen. What they promise you isn't necessarily what you get. You need to use common sense, watch out for your own interests and at least make an attempt to understand the fine print. The same principle applies when you examine plans to reform Wall Street. The Street certainly needs to be fixed, heaven knows. Its excesses are largely responsible for the financial crisis that brought markets crashing down in 2008 and plunged the economy into recession. The government needs to step in: to stop people from being cheated, to help capitalism regain some of the public trust it's lost, and to make markets transparent enough that people other than a handful of elite insiders can figure out what's going on. Salesmanship, however, isn't confined to Wall Street. President Obama's recent speech at New York City's Cooper Union college, just north of Wall Street, sure was a great pitch. Who can disagree with wanting "a commonsense, reasonable, non-ideological approach to target the root problems that led to the turmoil in our financial sector and ultimately in our entire economy"? What we'll get from the legislation, however, isn't necessarily what we heard from the Salesman in Chief.
LA Times:
Home Appraisals Still Fraught With Uncertainty Despite New Code of Conduct. The recently launched system is intended to provide more honest valuations. But the use of third-party appraisal management companies has led to complaints. Little known outside the housing industry — and little understood inside the business — the Home Valuation Code of Conduct (HVCC) was supposed to result in better, more honest appraisals. But a year after it was put in place there is still a question of whether home buyers are getting their money's worth. Real estate professionals, home builders, mortgage brokers and even some appraisers themselves complain that lenders are using appraisers who lack experience, sometimes travel great distances to divine values in unfamiliar jurisdictions or base their determinations on sales that are not similar to the property they are appraising.
Chicago Sun-Times:
One of Obama's Closet Friends Part of Federal Probe. E-mails and other records of Dr. Eric Whitaker -- one of President Obama's best friends -- have been subpoenaed by a federal grand jury, the Chicago Sun-Times has learned. The investigation involves "faith-based initiatives" and health-awareness campaigns funded by the Illinois Department of Public Health when Whitaker ran the agency for former Gov. Rod Blagojevich, according to copies of subpoenas obtained under the state's Freedom of Information Act. Obama has said he recommended Whitaker for that job, which Whitaker landed in April 2003. The president's friend resigned in October 2007 to join Obama's wife, Michelle, as an executive at the University of Chicago Medical Center. All told, Gov. Quinn's administration turned over copies of six subpoenas sent to four state agencies that show authorities have been seeking information about a variety of health-awareness grants and programs that have cost taxpayers millions of dollars.
Hate Derivatives? How Can You Like Cap-and-Trade?To crack down on existing derivatives while creating another one seems wildly inconsistent. The new derivative would be the tradable emission credit central to cap-and-trade systems for managing greenhouse gases. Legislation passed by the House made emissions trading its centerpiece.
TheStreet.com:
Chicago Firm Linked to P&G Trade: Source. The unusual trading action in Procter & Gamble(PG) stock believed to be at the center of the market's most volatile moments on Thursday is thought to have originated from Terra Nova Financial(TNFG), a Chicago-based provider of prime brokerage and clearing services, a person familiar with the situation told TheStreet.
Rasmussen Reports:
55% of Colorado Voters Favor Immigration Law Like Arizona's. Fifty-five percent (55%) of Colorado voters favor a law like the one just adopted in Arizona that authorizes local police to stop individuals they suspect of being illegal immigrants, according to a new Rasmussen Reports telephone survey in the state. Thirty-five percent (35%) oppose such a law. Nationally, 59% of voters favor a law like Arizona's, unchanged from a week earlier despite last weekend's protest rallies.
Possible Supreme Court Pick Had Ties With Goldman Sachs(GS). A top prospect for the Supreme Court was a paid member of an advisory panel for the embattled investment firm Goldman Sachs, federal financial disclosures show. Solicitor General Elena Kagan was a member of the Research Advisory Council of the Goldman Sachs Global Markets Institute, according to the financial disclosures she filed when President Obama appointed her last year to her current post. Kagan served on the Goldman panel from 2005 through 2008, when she was dean of Harvard Law School.
Telegraph:
Goldman(GS) to 'Sue for Peace' on Abacus Charges. The Sunday Telegraph can reveal that the US investment bank has already opened an informal negotiating channel with the SEC over the charges which focus on a sub-prime mortgage financial vehicle called Abacus. As part of the move on negligence, Goldman will insist that there will be no admission of wrong-doing but that it will be willing to pay a financial penalty for poor processes, for example. A senior figure close to the bank said that Goldman would never "win a battle" against the regulator and so the bank had to find a resolution. The source also revealed that Tim Geithner, the Treasury Secretary, and the Federal Reserve also wanted to see a solution to the dispute. The bank has seen millions of dollars wiped off its value following the charges after investors became concerned about the impact of a drawn out criminal process. In the next fortnight Goldman will file its defense documents with the SEC which the insider said would build a robust case against the main charges. The documents will make no mention of the negligence issue. Once that document is filed, Goldman's lawyers will then have an opportunity to see the SEC's case against them through the process of discovery. It is hoped that during that process a deal can be done. The move is part of Goldman's detoxification strategy as it attempts to head off aggressive attacks on the banks from politicians and pressure groups. The bank is now also considering appointing a handful of outsiders to its new high-profile ethics and standards committee, which will be charged with cleansing the bank's reputation. Part of its remit will be to question and assess what the public might make of certain practices, after Mr Blankfein admitted on Friday "that there is a disconnect between how we as a firm view ourselves and how the broader public perceives our role and activities in the market". Mr Blankfein hopes that the commitment to change will help to clean Goldman's image. “The idea is to make sure that what we’re doing is legal and honest and understandable,” said a Goldman source with knowledge of Mr Blankfein’s intentions.
BP(BP) Chief Reveals $10M Daily Clean-Up Bill. The chief executive of BP, Tony Hayward, has ordered a complete safety overhaul of all the oil giant's rigs after admitting that a cut-off valve known as the "blow out preventer" had fundamentally failed on the stricken Deepwater Horizon. In an interview with The Sunday Telegraph, Mr Hayward said that he expected regulators to put in a series of new safety measures in the Gulf of Mexico and elsewhere following the explosion on the rig which killed 11 workers and has led to fears of an oil slick destroying the area's delicate ecosystem. The new regulations will almost certainly increase costs of drilling in the area. Mr Hayward also revealed that BP could now be spending as much as $10m a day on the clean up operation, a significant increase on the original $6m a day revealed last week. This weekend, BP was making the final preparations to drop a "dome" over the well which is believed to be leaking 5,000 barrels of oil a day into the Gulf. Mr Hayward admitted that he was not confident that the dome, which is designed to collect oil from leaks which can then be siphoned off, would work as it had never been attempted at such deep levels. The Deepwater Horizon well operated at a depth of 4,500ft. "The blowout preventer, the ultimate safety system that every drilling operation has, failed and that is unprecedented," Mr Hayward said. "The oil industry has been drilling wells in deep water for 25 years, drilled 5,000-plus wells, maybe 10,000, around the world and this has never occurred.
Property Bubble Threatens China Rally. Guy de Blonay, co-manager of Jupiter's Financial Opportunities fund, cited the recent introduction of policy to control the property market as an indicator that the Government feels the property sector is slipping from its grasp. Mr de Blonay said the culture in China was to invest in property, rather than put savings in the bank or stock market. People tend to buy multiple properties off-plan, taking two or three mortgages out at a time. The total area under construction in China, for residential property and its infrastructure, is three times the size of Greater London. The worry is that the real demand will not meet the speculative building, said Mr de Blonay. "The increasing risk of a bubble in Chinese property is the key factor behind the current policy tightening cycle in China,'' he said.
TimesOnline:
Hedge Fund Directive Strikes Blow at City. A hung Parliament has left Britain at a huge disadvantage in negotiating the final wording of a controversial EU directive that will clamp down on hedge funds and private equity. Lisa Cawley, regulatory partner of law firm Kirkland & Ellis, said: “There is a real concern that the UK election result leaves a major part of our financial services industry without a voice at a critical point in the EU legislative process.”
Corriere:
Lamberto Cardia, chairman of Italy's securities market regulator Consob, said rating agencies should issue reports after the end of trade to avoid market "storms," citing an interview."With Moody's we intervened with a firm recall, so that in the future the diffusion of reports comes with timing and modality that reduces the impact on the market to a minimum, therefore after the close," said Cardia.
Euro am Sonntag:
Peter Bofinger said the European Central Bank should purchase government bonds in the short-term to stabilize the situation in the eurozone. The European Union should also take "long-term fundamental reforms," citing an interview with Bofinger, a member of German Chancellor Angela Merkel's council of economic advisers. This would include a specific timetable for the consolidation of public finances in the eurozone, which includes Germany, he said. "Targeted sanctions" should be created for countries with a lack of budget discipline, Bofinger said.
El Pais:
Spanish Prime Minister Jose Luis Rodriquez Zapatero aims to present the government's latest plan to cut the country's deficit on May 12, citing government officials.
O Estado de S. Paulo:
BP Plc(BP) plans to invest as much as $1 billion in Brazil's ethanol market, citing Philip New, head of the company's biofuels unit.
Caixin:
Now is the time for China to raise interest rates and the government should act without hesitation, Caixin said in an editorial on its website today. Concerns that raising interest rates could hurt China's recovery are outweighed by the negative long-term impact that keeping capital too cheap may have on the nation's economy, according to the editorial.
China Securities Journal:
China may allow a "slight" appreciation of the yuan in the second quarter, ending the currency's peg to the U.S. dollar. Monthly inflation may be close to 5% during the second quarter.
South China Morning Post:
Las Vegas Sands Corp.(LVS) had plans to expand gambling at its Cotai casino complex cut by 40% after Macau tightened the limit on gaming tables in the city. Sands received approval to add 400 tables at Cotai, citing the company's president, Michael Leven. Sands had planned to add 670 tables to the $4.2 billion resort complex that includes Sheraton, Shangri-La and Traders hotels, it said. Macau is seeking to cool growth in the casino industry by capping gaming tables in the city at 5,500, the report said.
The Fed's Kocherlakota speaking, (DNB) investor day, JMP Securities Research Conference and the Jefferies Internet/Media/Telecom Conference could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by technology and financial shares in the region. I expect US stocks to open higher and to maintain gains into the afternoon. The Portfolio is 50% net long heading into the week.
BOTTOM LINE: I expect US stocks to finish the week mixed as rising financial sector pessimism, profit-taking, increasing economic fear and China bubble concerns offset bargain-hunting and short-covering. My intermediate-term trading indicators are giving mostly bearish signals and the Portfolio is 50% net long heading into the week.
