Style Underperformer:
- Large-Cap Value (+.47%)
- Drugs (+.14%), Oil Tankers (+.28%) and Oil Service (+.43%)
- ERTS, SPWRB, XRTX, BKD, SYX, IIT and WWE
- 1) KR 2) CTRP 3) MDR 4) MHK 5) MDT
- 1) MS 2) WMT 3) CAM 4) BP 5) EBAY
Wednesday, May 12, 2010
Bear Radar
Style Underperformer:
Bull Radar
Style Outperformer:
- Small-Cap Growth (+1.38%)
- Construction (+2.83%), Computer Services (+1.97%) and Airlines (+1.95%)
- CREE, PT, ARD, VIP, HOC, AAPL, IBM, ISLN, GIB, HAR, BG, MED, MBLX, HMIN, CETV, CBPO, BIDU, ASEI, OPEN VRSK, KELYA, CTRP, PAAS, MRTN, NFLX, HELE, LQDT, PANL, ORBK, PETD, APEI, SHPGY, STC, XL, FIS, PWC, CPK, ASA, RUK, IYJ and NTT
- 1) STR 2) FIS 3) XL 4) LPX 5) PCS
- 1) AAPL 2) MSFT 3) BA 4) CVS 5) DHR
Wednesday Watch
Evening Headlines
Bloomberg:
- European Debt Woes Punish Corporate Borrowers: Credit Markets. Europe’s sovereign debt crisis is punishing corporate borrowers, with bond issuance tumbling as investors doubt a $1 trillion bailout plan will be enough to bolster confidence in government finances for the region. Borrowers worldwide have sold $15 billion of corporate debt this month, a 62 percent decline from the same period in April and 83 percent less than the average for the past year, according to data compiled by Bloomberg. The extra yield investors demand to own corporate debt instead of government securities soared last week to the highest in more than four months. While a finance package hammered out over the weekend by European leaders slowed the decline in the euro and spared Greece from defaulting, investors aren’t showing they’re convinced a 13-month credit-market rally is poised to resume. Corporate bonds have lost 0.47 percent in May, the worst start to a month since February, according to Bank of America Merrill Lynch index data.
- SEC Sends Subpoenas in Probe of Stock-Market Drop. U.S. Securities and Exchange Commission Chairman Mary Schapiro said the agency’s enforcement unit has issued subpoenas in an investigation of last week’s stock plunge. The division is “fully integrated in our review of the events of May 6 and will recommend appropriate action” if violations are found, she told a House Financial Services subcommittee today. “A number of subpoenas” were sent, she said, without identifying recipients. SEC investigators began preparing for a variety of inquiries in the hours after the Dow Jones Industrial Average briefly dropped as much as 9.2 percent, people familiar with the matter said last week. So far, regulators haven’t found evidence the incident was triggered by computer hackers, terrorists, malicious traders or a so-called fat finger entering an oversized order, Schapiro told lawmakers. The agency is also concerned that firms or exchanges may have lacked required controls to prevent the rout from snowballing, people familiar with the matter said. It will also look at whether traders tried to take advantage of the chaos by steps such as entering orders that drove some stocks down to pennies per share.
- Lumber Falls as British Columbia Cuts Export Tax. Lumber futures fell to a nine-week low after the government of British Columbia, Canada’s biggest wood-exporting province, said it will eliminate a tax on exports to the U.S., boosting prospects for increased supplies.
- Bernanke Said To Tell Senators Euro Aid No Panacea. Federal Reserve Chairman Ben S. Bernanke told U.S. senators today that the euro region’s almost $1 trillion aid package to stem its debt crisis isn’t a cure- all, according to a participant. “He said, ‘This is basically not a panacea,’” and that the measures are “temporary,” Alabama Senator Richard Shelby, the senior Republican on the Banking Committee, told reporters in Washington after a closed-door briefing Bernanke held with the panel. “There’s got to be fundamental underlying changes in their economies, not just Greece, but a lot of other countries,” Shelby cited Bernanke as saying. “Clearly, there are a lot of problems that exist between now over the next two to three years as to whether or not these economies can take the necessary steps to put themselves in better fiscal shape,” Senator Christopher Dodd, the Connecticut Democrat who chairs the banking panel, told reporters when asked about the Bernanke briefing.
- Saving Euro Trashes Trichet, Dooms Germany's AAA: Mark Gilbert. One of the proudest achievements of the euro project was ensuring government borrowing costs converged at the lower levels enjoyed by Germany rather than the higher yields paid by its less fiscally disciplined neighbors. That’s over. Done. Finished. Just as the bailout of the banking system produced a plethora of unintended consequences, so the European Union’s decision to pledge almost $1 trillion to defend the single-currency project will unleash a series of undesirable aftershocks. Here are some that are inevitable.
- Osborne to Set Out $9 Billion U.K. Budget Cuts Within 50 Days. David Cameron’s chancellor of the exchequer, George Osborne, will prepare an emergency budget within 50 days containing 6 billion pounds ($9 billion) of spending cuts to narrow Britain’s record deficit. The measure is part of Conservative Party’s deal with its coalition partners, the Liberal Democrats, announced last night. The agreement also contains a levy on banks, a commission to investigate splitting retail from investment banking, plans to limit bonuses, and measures to increase lending to businesses, party officials said.
- Japan Debt Faces 2012 Test as Retirees Grow, Dai-Ichi Life Says. Japan may lose its ability to domestically finance its debt “in a few years” because of a surge of retirees in 2012, according to an analyst at Dai-Ichi Life Research Institute. “The key year for public finances will be 2012, as the baby boomers retire and begin collecting their pensions en masse,” Toshihiro Nagahama, chief economist at Dai-Ichi Life Research Institute, said yesterday in an interview in Tokyo. “That may be when Japan’s sovereign risk becomes evident.” Japan, the largest borrower among developed nations, has yet to face a Greece-like fiscal crisis because it has been able to finance most of its spending at home, Nagahama said. The first of Japan’s baby boomers will turn 65 in 2012, making them eligible for pension payments. About 8 million, or 6 percent of the population, were born between 1947 and 1949, regarded as the baby boomer generation in Japan, government data show. Almost 23 percent of the nation’s 126 million people will be older than 65 this year, the highest proportion in the world, according to Bloomberg data. More retirees will lead to a “rapid” surge in the natural growth of the government’s social security burden, which tracks the yearly increase of costs as a result of the aging population, Nagahama said. Costs will rise 2.5 trillion yen annually by 2013, he forecasts, more than double the 1.09 trillion yen growth the government is projecting for this fiscal year.
- Blackstone(BX)-Led Fidelity Bid May Exceed $15 Billion. A group including Blackstone Group LP and Thomas H. Lee Partners LP is in talks to pay more than $15 billion including debt for Fidelity National Information Services Inc., said a person with knowledge of the matter, a price that values the company’s stock at about $32 a share.
- China's Bubble Risk Adds Pressure to Tighten Policy. China’s accelerating inflation and surging house prices are adding pressure on policy makers to raise interest rates and allow yuan gains even as their concerns over Europe’s debt woes persist.
- U.S. Probes Morgan Stanley(MS). Federal prosecutors are investigating whether Morgan Stanley misled investors about mortgage-derivatives deals it helped design and sometimes bet against, people familiar with the matter say, in a step that intensifies Washington's scrutiny of Wall Street in the wake of the financial crisis. Morgan Stanley arranged and marketed to investors pools of bond-related investments called "collateralized debt obligations," or CDOs, and its trading desk at times placed bets that their value would fall, traders say. Investigators are examining, among other things, whether Morgan Stanley made proper representations about its roles.
- Seven Children Killed in Attack on China School. An attacker hacked seven children to death Wednesday and wounded 20 others in a violent rampage at a kindergarten in northwest Shaanxi province -- the latest in a string of attacks on schools, a government official said. The slayings occurred despite a countrywide increase in security at schools, with additional police and guards posted at school gates. The attack comes after three similar ones at schools and kindergartens late last month left dozens of children injured, and raised questions on security and issues of massive social inequalities believed to play a role in the violence.
- Verizon(VZ), Google(GOOG) Developing iPad Rival.
- Walt Disney(DIS) Surpasses Expectations, but Shares Slide.
- EA's(ERTS) Profit Beat Not Enough to Satisfy Investors.
- China Analyst Sees Beginnings of Unfolding Credit Bust. China's economy is teetering on the edge of a major slowdown, though it's not a shakeout in the property market that's about to spark the distress, according to a noted China strategist. David Roche, an economic and political analyst who manages the Hong Kong-based hedge fund Independent Strategy, says the world's third-largest economy is now on the brink, faced with the inevitable reckoning that follows an extended bank-lending binge. "We've got the beginnings of a credit-bubble collapse in China," said Roche.
- Reed Seeks to Close Loophole for Small Funds. Senator Jack Reed, Democrat of Rhode Island and a member of the Senate Banking Committee, on Monday filed an amendment to the financial reform currently in the Senate that would require all hedge funds, private equity shops and venture capital firms to register with either a state regulator or the Securities and Exchange Commission, Politico reported. The amendment would mean that funds under $100 million, previously exempt from the proposed regulation, would now also be required to register.
- Market Inquiry Focuses on One Trader. Regulators examining the causes of the brief stock market free fall last Thursday are looking closely at heavy selling in the market for stock-index futures by a single trader, beginning 10 minutes before stock prices began to plummet.
- Forget About Housing, The Real Cause of the Crisis Was OTC. Economic bubbles are not recognized by those inside of them, the Congress of the united States being no exception. The $604.6 trillion derivatives bubble, which is equal to more than ten times world GDP, is a global issue. If existing OTC derivatives remain in place and there are no restrictions on what banks can trade derivatives, there is no actual or immediate reduction of systemic risk. Thus, the risks that led to the financial crisis in 2008 are likely to remain present in the global financial system for years to come. In fact, many banks have more CDS risk now than in 2008. Passing a bank-approved version of the financial reform bill, while it may be portrayed as a political victory or serve to calm financial markets temporarily, is unlikely to prevent another global financial crisis.
- Kyle Bass: Europe Is Nearing Its "Keynesian End", Now Expect Japan Crisis Headlines Next.
- Morgan Stanley's(MS) TARP Handout. Whose side is Treasury on, anyway? A new report from a federal bailout watchdog reveals that a top Treasury official told executives at Morgan Stanley (MS) how much it would cost the giant bank to repurchase the warrants it issued to the government following its October 2008 rescue. Herb Allison, an assistant Treasury secretary in charge of the Troubled Asset Relief Program, apparently provided the number as Treasury was squeezing Morgan Stanley to pay more after a series of lowball bids. Yet Allison may have unwittingly cost taxpayers some $375 million, says a finance professor who has been tracking the government bailout.
FINalternatives:
- Democrats Get Millions From Hedge Fund Billionaires. Despite Democratic-led efforts to impose stricter regulations on hedge funds, the industry’s top titans continue to give generously to the party. The top 10 best-paid hedge fund managers in the U.S.—as identified by AR magazine—have given almost all of their campaign contributions to Democrats. Over their lifetimes, the top 10—which include such high-profile Democratic donors as George Soros—have given a total of $33 million to President Barack Obama’s party. They’ve given only $600,000 to Republicans, according to the National Republican Congressional Committee. Democrats are also taking more from the financial services, insurance and real-estate industries than ever before. Over the past 20 years, Democrats got 45% and Republicans 55% of the $2.4 billion doled out by those industries. In the current campaign cycle, Democrats have nabbed 54% of the money.
- Texas House Budget Chief: Gambling Could Help Close State's $18B Gap. Lawmakers will have to close an $18 billion budget shortfall next session and should consider an expansion of gambling, not just deep cuts in spending, the House's chief budget writer said today. "Gambling could help us on our budget," said Rep. Jim Pitts, R-Waxahachie, after his Appropriations Committee heard sobering testimony from revenue and budget experts this morning.
- Democrats Ignore Causes of Housing Crisis, Refuse to Rein in Fannie & Freddie. Fannie Mae and Freddie Mac are more overleveraged and more underwater than any of the banks in trouble, but the Dodd bill doesn’t even mention them in its hundreds of pages. Senator McCain has offered an amendment that would repeal their liberal housing goals that encouraged more risky lending and fueled the housing crisis, as well as end their dominance of the mortgage market and let the private sector back in. While more needs to be done to quickly end the permanent bailout of these mortgage giants, the McCain amendment is an important first step. True financial reform must include Freddie Mac and Fannie Mae. Congress cannot pretend to have ended “too big to fail” without ending these out of control institutions.
- CBO Ups Health Care Cost Projections. Congressional Budget Office estimates released Tuesday predict the health care overhaul will likely cost about $115 billion more in discretionary spending over ten years than the original cost projections. The additional spending — if approved over the years by Congress — would bring the total estimated cost of the overhaul to over $1 trillion. Republicans pounced on the news, which they called another sign that the Obama administration makes promises it cannot deliver. “The American people wanted one thing above all from health care reform: lower costs, which Washington Democrats promised, but they did not deliver,” said House Minority Leader John A Boehner (R-Ohio). “It was clearly irresponsible for Washington Democrats to force this legislation through Congress without being truthful about its full impact on the nation’s finances. Republicans are fighting to repeal this job-killing health care law and replace it with reforms focused first on lowering costs and protecting American jobs.”
- Dems Plot Fee Hike on Oil. Alarmed by the growing cost of the Gulf disaster, Democrats are actively discussing at least a one-cent-per-barrel increase in fees paid by the oil industry to finance a government trust fund covering damage claims from such spills. No final decision has been made, but the added revenue is coveted by tax writers, still struggling to find $45 billion to $50 billion in offsets needed to pay for an election-year package of infrastructure investments and popular tax break extensions.
- Senate Votes to Dedicate TARP Funds to Deficit. The U.S. Senate unanimously approved a measure on Tuesday that would require the government to use money paid back from banks and other bailed-out companies for deficit reduction, not additional spending. The proposal, which passed by voice vote, could clash with Democratic plans to use some of the money recovered under the Troubled Asset Relief Program to stimulate the economy.Republicans have argued that the recovered money should be used to pay down the budget deficit, which could hit a record $1.5 trillion this fiscal year. Earlier this year, the Senate rejected a Republican proposal that would have ended the TARP program. If it becomes law, the measure would reduce the size of the TARP program from $700 billion to $550 billion and prevent the Treasury Department from redirecting unused funds toward new programs.
- China Mobile Interested in Bringing Apple(AAPL) iPad to China.
- Intel(INTC) CEO Confident of Return to Sales, PC Growth. Intel Corp (INTC) expects to double its earnings growth in the next few years and on Tuesday raised its long-term margin outlook, as the world's top microchip maker spreads its chips beyond PCs to gadgets like smartphones and televisions. Chief Executive Paul Otellini told investors on Tuesday that Intel is eager to establish a footprint in fast-growing -- but intensely competitive -- markets, diversifying beyond a PC market it now dominates.
- Nasdaq, NYSE Short Interest Near Flat in Late April. Short interest on the New York Stock Exchange and the Nasdaq were little changed in late April during a time when the S&P 500 hit a 19-month high, data showed on Tuesday. Short interest on the New York Stock Exchange fell 0.36 percent in the second half of April, while it edged up 0.08 percent on the Nasdaq, the exchanges said on Tuesday.
- Exemption Sought to OTC Derivatives Rules. Large US industrial and manufacturing groups have intensified their campaign to ensure they will be exempt from proposed rules to reform the over-the-counter derivatives market. They say the draft legislation does not ensure that they will be allowed to continue using the contracts to hedge against interest-rate and currency fluctuations. OTC derivatives have been blamed for exacerbating the financial crisis, and reforming the market is central to regulatory reforms being considered by the Senate. US lawmakers and regulators want most OTC deals – in which two parties privately agree a customised contract – to be traded and cleared centrally. But debate has intensified over who will be exempt from requirements to process OTC contracts through a clearing house, which would entail posting cash margins on every trade. “The fiercest part of the debate is over where exactly the line is drawn on exemptions,” Terry Duffy, chairman of the CME Group, the world’s biggest listed futures exchange, told the Financial Times. David Hall of Chatham Financial, the interest rate and foreign-exchange risk management advisers, said: “If you don’t get the exemption, you’re going to be forced to abide by all the most stringent clearing margin and trading provisions,”
- Strauss-Kahn Calls for Eurozone Reform. Eurozone nations should take a big step towards integration with a new system of cross-border budgetary co-ordination, according to the head of the International Monetary Fund. Dominique Strauss-Kahn, IMF managing director, suggested introducing short-term fiscal transfers between member states as a way to avoid a repeat of the crisis that has shaken financial markets. The proposal, made in an interview with the Financial Times, would mark a move towards common economic governance in the 16-nation euro area, but would probably run into resistance in Germany, Europe’s largest economy. “What you need is stronger surveillance and tools to organise transfers from one part of the area to other parts,” he said. Olli Rehn, the EU’s monetary affairs commissioner, will on Wednesday put forward similar ideas on fiscal and economic policy co-ordination. He will urge eurozone countries to adopt procedures under which each state’s annual budget is subjected to review by the area’s 15 other governments well before it becomes law.“This is a not a matter of interfering with national sovereignty,” one high-level EU policymaker said.
- Germany's ruling coalition government may crumble as Chancellor Angela Merkel's rejection of income-tax cuts deprives her Christian Democratic Union of an economic-policy platform. "There's a danger that the black-yellow project at the federal level faces the end after only seven months," said Josef Schlarmann, a member of the Christian Democrats' executive board. He was referring to the respective party colors of the CDU and its coalition partner, the Free Democratic Party. Schlarmman heads a lobby representing 40,000 business owners and managers allied with Merkel's party.
- China central bank adviser, Li Daokui, said conditions are ripe for the monetary authority to set deposit rates higher because of mounting inflation.
- N. Korea Weapons Seized in Bangkok Were Headed for Hamas Via Syria: Israel. The North Korean weapons seized in Bangkok in December were destined for the Hamas and Hizbullah militant groups via Syria, the Israeli Foreign Ministry said in a statement Tuesday.
- China's Wealth Divide Past Warning Level: Analysts. The Gini coefficient - a commonly used measure of inequality of wealth - has reached 0.47 in China, overtaking the recognized warning level of 0.4, government-affiliated experts have said. "The Gini coefficient in China has been continuously rising after it reached the alarming 0.4-level 10 years ago," Chang Xiuze, a researcher with the academy of microeconomic research under the National Development and Reform Commission, was quoted as saying in the Economic Information Daily on Monday. Li Shi, a professor on income distribution and poverty studies with the Beijing Normal University, said the income of the top 10 percent of the richest Chinese was 23 times that of the bottom 10 percent in the country in 2007, as compared with 1998, when the gap was only 7.3 times. Some economists believe the widening wealth gap is partly the result of large amounts of "illegal income" resulting from corruption. "The income of senior executives in some State-owned enterprises is about 128 times of the average social income," Su Nanhai, director of the labor and wage institute under the Ministry of Human Resources and Social Security, was quoted as saying. "It is sad that smart and hardworking people cannot have high incomes if they work in non-monopolized trades," he said.
- Toyota Motor Corp.(TM) will reduce its annual domestic production capacity by 20% to 3.2 million vehicles in 2015. Toyota doesn't expect a strong increase in sales after the recent worldwide vehicle recalls.
- Shanghai will impose a series of regulations, including residential property taxes, to curb the real-estate prices in the financial hub of China as early as this month, citing people close to the government.
Citigroup:
- Reiterated Buy on (CMI), target $83.
- Reiterated Buy on (ETN), target $88.
- Reiterated Sell on (SPWRA), lowered target to $12.
- Asian indices are -.50% to +.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 114.0 +6.0 basis points.
- S&P 500 futures -.68%.
- NASDAQ 100 futures -68%.
Earnings of Note
Company/Estimate
- (M)/.04
- (CSCO)/.39
- (JACK)/.39
8:30 am EST
- The Trade Deficit for March is estimated to widen to -$40.5B versus -$39.7B in February.
- Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,600,000 barrels versus a +2,755,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +400,000 barrels versus a +1,257,000 barrel increase the prior week. Distillate inventories are expected to rise by +1,150,000 barrels versus a +573,000 barrel gain the prior week. Finally, Refinery Utilization is expected unch. versus a +.64% gain the prior week.
- The Monthly Budget Deficit for April is estimated to widen to -$56.0B versus -$20.9B in March.
- None of note
- The Fed's Rosengren speaking, Fed's Lockhart speaking, Fed's Bullard speaking, $24 Billion 10-Year Treasury Bonds Auction, weekly MBA mortgage applications report, Bloomberg Global Confidence Index, BofA Merrill Healthcare Conference, UBS Financial Services Conference, Deutsche Bank Alt Energy/Utilities/Power Conference, Jefferies Internet/Media/Telecom Conference, (CCC) analyst meeting and the (HUN) investor day could also impact trading today.
Tuesday, May 11, 2010
Stocks Mostly Higher into Final Hour on Less Economic Fear, Short-Covering, Bargain-Hunting
Broad Market Tone:
- Advance/Decline Line: Higher
- Sector Performance: Most Sectors Declining
- Volume: Above Average
- Market Leading Stocks: Outperforming
- VIX 28.45 -1.28%
- ISE Sentiment Index 115.0 +38.55%
- Total Put/Call 1.11 +8.82%
- NYSE Arms 1.79 +182.99%
- North American Investment Grade CDS Index 103.88 bps +1.40%
- European Financial Sector CDS Index 116.50 bps -1.78%
- Western Europe Sovereign Debt CDS Index 120.33 bps +1.12%
- Emerging Market CDS Index 240.50 bps +.34%
- 2-Year Swap Spread 31.0 +3 bps
- TED Spread 28.0 unch.
- 3-Month T-Bill Yield .15% unch.
- Yield Curve 269.0 +1 bp
- China Import Iron Ore Spot $175.30/Metric Tonne -.11%
- Citi US Economic Surprise Index +14.40 -.3 point
- 10-Year TIPS Spread 2.26% +2 bps
- Nikkei Futures: Indicating +49 open in Japan
- DAX Futures: Indicating +10 open in Germany
- Slightly Higher: On gains in my Biotech, Retail and Medical long positions
- Disclosed Trades: Covered all of my (IWM), (QQQQ) hedges and then added them back
- Market Exposure: 75% Net Long
Stocks Mostly Lower into Final Hour
Broad Market Tone:
- Advance/Decline Line: Lower
- Sector Performance: Almost Every Sector Declining
- Volume: Around Average
- Market Leading Stocks: Performing In Line
- VIX 25.38 -.55%
- ISE Sentiment Index 106.0 -8.62%
- Total Put/Call .79 -8.14%
- NYSE Arms 1.36 +68.39%
- North American Investment Grade CDS Index 98.98 bps +1.84%
- European Financial Sector CDS Index 118.15 bps +7.86%
- Western Europe Sovereign Debt CDS Index 106.66 bps -2.88%
- Emerging Market CDS Index 233.83 bps +1.18%
- 2-Year Swap Spread 30.0 +3 bps
- TED Spread 28.0 unch.
- 3-Month T-Bill Yield .15% unch.
- Yield Curve 271.0 +1 bp
- China Import Iron Ore Spot $169.50/Metric Tonne -1.22%
- Citi US Economic Surprise Index +13.90 -.5 point
- 10-Year TIPS Spread 2.30% -2 bps
- Nikkei Futures: Indicating -135 open in Japan
- DAX Futures: Indicating -15 open in Germany
- Slightly Lower: On losses in my Biotech, Retail and Technology long positions
- Disclosed Trades: Added to my (IWM), (QQQQ) hedges and added to my (EEM) short
- Market Exposure: Moved to 50% Net Long
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Today's Headlines
Bloomberg:
- ECB 'Shock Troops' Go It Alone as Investors Question EU Plan. European Central Bank President Jean- Claude Trichet is buying time for the euro region as investors speculate on whether the $1 trillion bailout plan is enough to stop the sovereign debt crisis. Spanish and Portuguese bonds have rebounded as the ECB snapped up government debt, reversing a rout that threatened the nations’ ability to borrow. At the same time, the euro fell and stock indexes pared yesterday’s gains on concern about how indebted countries will cut deficits and access aid if needed.
- AIG(AIG) Approves $380 Million of Awards for Managers in 2010 Plan. American International Group Inc. approved a plan to award executives $380 million, based on their performance, as part of an overhaul of pay practices following the insurer’s taxpayer-funded bailout. The payouts are earmarked for as many as 3,000 managers in a long-term incentive plan, for an average of more than $125,000 per recipient, said two people with knowledge of the program. Board members approved the 2010 program in March, New York-based AIG said in a filing last week. That is the same month employees got the final payments from a previous retention bonus program. The new plan covers managers who fall below AIG’s top 100 earners, said the people, who declined to be identified because some details of the program haven’t been disclosed.
- EU's Barnier Says Hedge-Fund Compromise Is Possible. Michel Barnier, the European Union’s financial services commissioner, said that a final agreement between the U.S. and EU on rules to regulate hedge funds is “possible soon.” “The debate on hedge funds and private equity is in the last stretch” Barnier said following a speech in Washington. He is on a trip to the U.S. to reach a consensus on issues including regulation of banks and their capital requirements.
- China Stocks Enter Bear Market on Inflation, Property Concerns. dropped, sending the benchmark index into a bear market, on concern the government will raise borrowing costs to combat inflation and unveil more measures to curb soaring housing prices.China’s stocks The Shanghai Composite Index fell 1.9 percent, led by financial companies and commodity producers, after reports showed consumer prices rose the most in 18 months and property values in 70 cities jumped a record 12.8 percent in April. “If inflation isn’t contained, the central bank will have to raise interest rates,” said Zhao Zifeng, who helps oversee about $10.2 billion at China International Fund Management Co. in Shanghai. “We’ll still need to gauge housing prices in the coming months as the previous crackdown measures were put in place not long ago. More tightening policies could follow.” The Shanghai index has dropped more than 20 percent from a November peak, the definition of a so-called bear market, on speculation efforts to rein in the housing market will hurt earnings.
- Copper Falls in Asia on Dollar, Slowing China Industrial Production. Copper declined in Asia as a stronger dollar reduced the investment appeal of commodities priced in the currency and industrial production growth in China slowed. Aluminum, lead and zinc also dropped. Three-month delivery copper on the London Metal Exchange fell as much as 1.9 percent to $6,986 a ton before trading at $6,995 a ton at 3:05 p.m. in Shanghai as the dollar rose for the first time in three days. “China’s credit tightening and investors’ risk aversion will together strangle any rebound in copper,” Liu Zhuang, an analyst at Haitong Futures Co., said from Shanghai.
- New Obama Strategy Treats 'War' on Drugs as Public Health Issue. President Barack Obama’s plan to fight drug abuse and trafficking proposes spending $15.5 billion next year and shifting the emphasis from fighting a war on drugs to treating the problem as a national health issue, the administration’s top drug-policy adviser said in an interview. “It’s a disease, it’s diagnosable and it’s certainly something that can be treated -- but it’s not a war,” said Gil Kerlikowske, director of the White House Office of National Drug Control Policy. The president’s plan calls for increasing drug-control spending by 3.5 percent in the fiscal year that begins Oct. 1.
- Germany, France May Hurt AAA Ratings in 'Ponzi Game'. Germany and France are among top- rated euro-area states that may compromise their AAA grades by standing behind the debts of weaker members with their 750 billion-euro ($955 billion) stabilization fund. The package is “making debt profiles deteriorate, potentially damaging the ratings of core sovereigns,” said Stefan Kolek, a strategist at UniCredit SpA in Munich. “It’s a kind of Ponzi game at the highest level.”
- Taliban Ties to NY Bomb May Spark Wider Pakistan War. The Pakistan Taliban’s ties to the failed car bomb in New York’s Times Square may ignite an escalating conflict in the South Asian nation as the U.S. pressures its ally to foil future attacks. Secretary of State Hillary Clinton said in a CBS television interview May 9 the U.S. has told Pakistan it would face severe consequences if militants in that country attacked the U.S.
- Obama Administration Plans Oil Drilling Agency Split. President Barack Obama will propose splitting the government agency that administers offshore oil drilling into two sections as part of the response to the spill in the Gulf of Mexico, White House spokesman Robert Gibbs said.
Wall Street Journal:
Bloomberg Businessweek:
- EU Governments' Deficit Cuts May Hamper Recovery, IMF Warns. Europe still needs economic-support measures as their early withdrawal may jeopardize the recovery, the International Monetary Fund said, a day after the region’s finance ministers agreed on a rescue package that includes stepped-up budget-deficit cuts. “Aiming to stabilize public debt in the short run is neither feasible nor desirable, given the risk of a relapse into recession and the magnitude of the required fiscal retrenchment,” the IMF said in a report released today. “However, sustainability indicators are flashing warning signs about the public debt in most countries, and sizable consolidation efforts are needed in the medium term.” “It’s not just about giving money or lending money,” European Commission President Jose Barroso said today in Brussels. “It’s about asking the member states of the euro area to make additional efforts” to narrow their deficits. European Central Bank Governing Council member Nout Wellink stressed that the emergency aid facility has a limited lifetime of three years. “If the countries don’t shore up their budgets fast, this will be insufficient,” Wellink said in an interview with Dutch newspaper NRC Handelsblad.
- Bank of New York Mellon's Ivy Sued by Cuomo on Madoff. Ivy Asset Management LLC, its former Chief Executive Officer Lawrence Simon and ex-Chief Investment Officer Howard Wohl were sued by New York Attorney General Andrew Cuomo and accused of misleading clients about investments tied to Bernard Madoff. Ivy, a New York-based investment adviser owned by Bank of New York Mellon, withheld damaging information about Madoff so the firm could make millions of dollars in fees, Cuomo said today in a statement. From 1998 to 2008, Ivy was paid more than $40 million to give advice and conduct due diligence for clients with large Madoff investments, Cuomo said. Even after the company learned Madoff was not investing client funds as promised, Ivy kept silent so as to not lose the fees, e-mails revealed, according to Cuomo.
- Home Prices Gain in 91 Cities in First Quarter. Home prices rose in 91 U.S. cities in the first quarter as states hard hit by foreclosures began to recover and a tax credit cut the number of properties for sale. The median price of a single-family home sold in Saginaw, Michigan, doubled to $60,800, the Chicago-based National Association of Realtors said in a report today. Prices in Akron, Ohio, climbed 90 percent to $95,300 and Grand Rapids, Michigan, recorded a 26 percent increase to $90,700. Nationally, the median declined 0.7 percent.
- US Exposure to EU Bailout: $50 Billion and Counting. US taxpayers could be on the hook for $50 billion or more as part of the European debt bailout, which is likely to be a close cousin to the strategy used to rescue the American financial system.
- Florida Suit Poses a Challenge to Health Care Law. As they constructed the requirement that Americans have , Democrats in Congress took pains to make their bill as constitutionally impregnable as possible. But despite the health care law’s elaborate scaffolding, attorneys general and governors from 20 states, all but one of them Republicans, have now joined as confident litigants in a bid to topple its central pillar. In the process, they hope to present the with a landmark opportunity to define the limits of federal authority, perhaps for generations. In the seven weeks since the legislation passed, at least a dozen lawsuits have been filed in federal courts to challenge it, according to the Justice Department. But the case that could carry the most weight, and may be on the fastest track in the most advantageous venue, is the one filed in Pensacola, Fla., by state officials, just minutes after signed the bill.
- A Mighty Trading Quarter for Goldman(GS) and JPMorgan(JPM). Goldman Sachs isn’t the only firm that made a trading gain every day last quarter. JPMorgan Chase reported positive trading revenue every day in its first quarter, according to a regulatory filing posted Monday. The firm said that its average daily revenue was $118 million. The achievement is remarkable for both Goldman and JPMorgan — and yet may serve as another target for legislators eager to restrain the trading activities of banks.
- The Amazing Management Principles of Bridgewater's Ray Dalio. Dealbreaker has an amazing story on the inside of hedge fund Bridgewater complete with an internal handbook of "management principles" compiled by top manager Ray Dalio. Dalio's dogma is displayed in full, as the core principals of Bridgewater are there front and center for everyone to see.
Zero Hedge:
Bespoke Investment Group:- Country Default Risk Plummets. The European aid package announced over the weekend has helped boost global equity markets across the board, and it has also caused sovereign debt default risk to decline significantly over the past two days. Below we highlight 5-year credit default swap prices ($, bps) for a number of countries around the world. For each country, we highlight where default risk stands now, where it was last Friday before the bailout, and where it was at the start of 2010 and the start of 2008.
- Lawsuit Wants SEC to ID Porn Snoopers. The Securities and Exchange Commission is facing a federal lawsuit for keeping secret the names of dozens of its supervisors, employees and contractors who spent their workdays looking at pornography on their government computers. The lawsuit, filed Friday by a Denver- and Washington-based law firm, accuses the SEC of violating federal open-records law by shielding the identities of more than two dozen current and past porn-snooping workers. "There simply is no privacy right or interest to search pornography on SEC computers, particularly during work hours," says the 17-page complaint, filed in federal court in Denver.
- China Readies for Launch of Onshore CDS. China is gearing up efforts to launch an onshore credit default swap (CDS) market as the country seeks to gradually build out its financial derivatives markets. The creation of a credit derivatives market in the country is seen as an important step to enable Chinese banks to lay off risks that ultimately might reduce their need to tap capital markets to meet strict capital ratios as they expand their lending operations.
- 63% Expect Health Care Law to Increase Deficit, 56% Favor Repeal. The number of U.S. voters who expect the recently passed health care bill to increase the federal deficit is at its highest level yet, and most voters continue to favor its repeal. The latest Rasmussen Reports national telephone survey of Likely Voters shows 63% now believe the health care reform legislation signed into law is likely to increase the federal deficit. That’s up four points from last week and up three points from when the law was passed in March. Only 12% expect the law to reduce the deficit, down four points over the past week and the lowest level measured to date. Support for repeal is proving to be just as consistent as opposition to the plan before it was passed into law. Fifty-six percent (56%) now favor repeal, including 46% who Strongly Favor it. Thirty-seven percent (37%) are opposed to repeal, with 28% Strongly Opposed.
- Eurozone Banks Sip at ECB's Dollar Swap Facility. Rumors of an interbank funding squeeze swirled through the market last week. Barclays Capital analysts for example noted that demand for USD funding in Europe had spiked in recent days. The activation of fresh ECB, BoE, Fed and Bank of Japan dollar swap lines over the weekend seemed to confirm as much. But it wasn’t until Tuesday that we really got a good idea of how much of a funding squeeze there had actually been. In short, $9bn-worth is not a huge number in the context of about $500bn average use of the Fed’s swap facility at the peak of the crisis, but it does show some demand. Reuters, meanwhile, reported that the Bank of England had received no bids at its first dollar repo operation since restarting the facility. In other words, this may firmly be just a eurozone problem — for now.
- Gordon Brown Quits as PM as Lib-Dem Deal Falls Apart. Gordon Brown is set to resign and allow David Cameron to be Britain's new Prime Minister, Evening Standard learns. The Labour leader's final desperate attempt to cling on to power with a Lib-Lab deal crumbled amid a rebellion on his own side and policy disagreements with Liberal Democrat leader Nick Clegg. This afternoon he retreated to No 10 to discuss his situation with senior ministers, friends and wife Sarah. Mr Brown had planned to stay in power until the summer if the deal had worked, earning himself a place in history as the man who won a historic fourth term for Labour. However, Labour MPs and ministers reacted with anger to the attempted deal, saying they would prefer to be in opposition than in government with the Lib-Dems.
- Citigroup Inc. Chief Economist Willem Buiter said European governments may have to expand their stabilization package for indebted nations to about 2 trillion euros of capital and guarantees "in the medium term," citing an interview. The rescue plan probably will not be limited to three years as foreseen now and may be turned into a permanent feature.
- China's consumer price index will continue to trend higher over the next three months compared with last year, citing Yao Jingyuan, chief economist at the National Statistics Bureau.
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