Goldman Sachs(GS), TCW Sued by Landesbank Over $37 Million in Losses From CDO. Goldman Sachs Group Inc. and TCW Group Inc. were sued by Landesbank Baden-Wuerttemberg over $37 million in losses from an investment in a collateralized debt obligation named Davis Square Funding VI. The CDO, for which Goldman was the placement agent and TCW the investment adviser, held 95 percent residential mortgage- backed securities, of which 33 percent were subprime and 46 percent were “midprime,” the German bank said in a complaint filed today in federal court in Manhattan. When Goldman sold the investments to a Luxembourg affiliate of LBBW in March 2006, they were represented as “safe, secure, and nearly risk free,” according to the complaint. At the same time, Goldman senior executives privately observed that “it was game over” for subprime lenders and were reducing their exposure to the mortgages, LBBW said. “Goldman knew at the highest levels of its organization that its representations to LBBW Luxemburg that the notes merited triple-A ratings and were high grade were blatantly false,” the Stuttgart-based bank said. “Goldman committed fraud and, or, was negligent in marketing and selling the notes to LBBW Luxemburg.” Moreover, Goldman was buying credit default swaps in case Davis Square VI and similar CDOs would fail and was also using TCW Group’s parent company, Societe Generale SA, to purchase insurance specifically against Davis Square’s failure, the bank said.
BofA(BAC) Foreclosures May Prompt Servicer-Rating Cut, Moody's Says. Bank of America Corp., which delayed foreclosures last week to review affidavits it submitted to courts in 23 states, may have its top servicer-quality ratings cut, Moody’s Investors Service Inc. said. “Irregularities” in the bank’s process may delay home seizures, allow legal challenges to completed foreclosures and pose a “reputational risk,” Moody’s said in a statement today. The ratings company also cited “deterioration of the company’s collections, loss mitigation and timeline performance metrics.”
Buffett's China-Gushing Optimism Sells Like Sex: William Pesek. The marriage of Buffett’s suddenly unbridled optimism and China’s perceived invulnerability is a fascinating milestone. Just two years after pushing a “buy American” campaign, Buffett is leaning toward a “buy Chinese” one. In reality, the Buffett gush-fest is a reminder of the precariousness of the global economy. It’s one in which the biggest economies and the savviest investors may be relying too much, too soon, on a developing nation.
Emanuel Gets Earful in Chicago Listening Tour for Mayoral Run. Rahm Emanuel discovered today that coming home to Chicago isn’t always sweet. Rivals to the throne of retiring Mayor Richard M. Daley sent supporters to challenge the former White House chief of staff. Protesters jeered his role in President Barack Obama’s support for Wall Street banks. Black voters criticized him for what they said was the administration’s inability to help Chicago communities suffering from unemployment. Rahm Emanuel discovered today that coming home to Chicago isn’t always sweet. Rivals to the throne of retiring Mayor Richard M. Daley sent supporters to challenge the former White House chief of staff. Protesters jeered his role in President Barack Obama’s support for Wall Street banks. Black voters criticized him for what they said was the administration’s inability to help Chicago communities suffering from unemployment.
Bernanke Calls on Lawmakers to Consider Rules on Limiting Federal Spending. Federal Reserve Chairman Ben S. Bernanke called on U.S. lawmakers to consider rules limiting federal spending, annual deficits or accumulated debt to curtail the risk of a fiscal crisis. “Well-designed rules can help promote improved fiscal performance,” Bernanke said today in a speech in Providence, Rhode Island. A rule “could provide an important signal to the public that the Congress is serious about achieving long-term fiscal sustainability, which itself would be good for confidence,” he said.
Elpida Earnings Likely to Miss Forecast, CEO Says. Elpida Memory Inc., the world’s third-largest maker of computer-memory chips, will probably miss previous earnings projections as slowing personal-computer demand drives down chip prices, President Yukio Sakamoto said.
MSCI China Index May Drop 15% in Fourth Quarter on Stimulus Exit, RBS Says. The MSCI China Index may fall 10 percent to 15 percent this quarter as the government focuses on structural reform instead of boosting the economy as growth moderates, Royal Bank of Scotland Group Plc said. “Beijing is increasingly aware of the side effects of its unprecedented stimulus measures, among which excess liquidity has to be one,” analysts led by Wendy Liu wrote in a report yesterday.
Wall Street Journal:
Arthur Laffer: The Bill Gates Income Tax. If Washington's most famous billionaires are really worried about their state's finances, they'd write personal checks to the government and leave everyone else alone.
iPad Adoption Rate Fastest Ever, Passing DVD Player. Apple’s(AAPL) iPad sold three million units in the first 80 days after its April release and its current sales rate is about 4.5 million units per quarter, according to Bernstein Research. This sales rate is blowing past the one million units the iPhone sold in its first quarter and the 350,000 units sold in the first year by the DVD player, the most quickly adopted non-phone electronic product.
Billionaire Calls Flash Crash a Regulatory Failure. Ron Baron, the mutual fund magnate, says smart guys will always get around the rules. Baron Capital founder Ron Baron says the flash crash was caused by a crazy, fragmented market.
ABCNews:
US Plans Law Enforcement 'Surge' On Trains. US authorities plan a law enforcement surge this week along Amtrak routes, an exercise called operation RailSafe, and the heads of the country's biggest mass transit systems were briefed today on the possible terror threat, all part of what is being called an abundance of caution. Amtrak is holding a high-security exercise on Friday in which uniformed officers will be a visible presence on national transit routes.
PIMCO:
Paul McCulley Discusses PIMCO's Cyclical Outlook. Developed economies must spend an extended period undergoing balance sheet repair. Also, we are confident that monetary policy in the developed countries will remain extraordinarily accommodative for a very extended period. The bottom line for the U.S. is a growth trajectory so slow you’d nearly call it stalled, in the context of a huge output gap, implying further disinflation from an already too-low level for inflation. We are living in a world transforming to greater influence from the emerging countries, with retrenchment in the developed countries. And as strong as many of the emerging markets are, they are still tethered to the developed markets by strong global trade linkages.
AOL News:
Who's Really to Blame for Monster Deficits?Between 2011 and 2018, Obama would spend $4.9 trillion more than Bush had planned to. Keep in mind that all this extra spending is after the economic stimulus has been almost entirely exhausted. In other words, if Obama had simply kept Bush's spending policies in place, federal deficits over the next eight years would be 60 percent lower. In 2018, we'd have a deficit of just $188 billion, instead of the projected $996 billion under Obama's budget. So while Bush no doubt shares the blame for the dismal budget outlook, the majority of the blame belongs with Obama for putting the government on a far higher spending path.
EE Times:
Analog Faces Slowdown. Don't look now, but analog is slowing. FBR has lowered its estimates for Linear Technology Corp.(LLTC) and Maxim Integrated Products Inc.(MXIM) And MaxLinear Inc. lowered its sales forecast. ''Recent checks with Asian distributors suggest 4Q analog backlog is falling, and that 4Q '10 distributor shipments may track flat to slightly down sequentially, worse than Street estimates,'' said Craig Berger, an analyst with FBR, in a report. ''We hear PC-related analog demand is weaker than expected as supply chain participants reduce chip inventories for Intel's outgoing Calpella notebook platform, and before Sandybridge notebooks ramp in 1Q '11. While industrial shipments are still robust, we see cracks starting to form there, too.''
Reuters:
US Regulators May Need Help Policing Swaps Market. U.S. market regulators may need help supervising the dozens of new entities that will serve as trading venues for the $615 trillion over-the-counter derivatives market, regulators and industry officials said on Monday.
U.S. "Flash Crash" Report Ignores Research - Nanex. Eric Hunsader, a software maven who coined the phrase "quote-stuffing" and created graphics to show how alleged market manipulation worked, said regulators dismissed his extensive research in last week's "flash crash" report.The findings by the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission said a sale of Chicago Mercantile Exchange stock futures worth $4.1 billion helped trigger the meltdown in U.S. stock prices on May 6 and laid the blame on a lack of liquidity in markets that day. Backers of high-frequency trading, who say they have been unduly blamed for the market's gyrations on May 6, lauded the regulators' findings. But Hunsader said regulators largely ignored his "quote-stuffing" theory which argued that high-frequency traders had contributed to the crash by flooding the market with so many orders that it delayed the posting of prices to the consolidated quote system. "It just seemed to me too much ink was devoted to try to discredit theories without any evidence, without any basis, other than just, 'We looked at it, we talked to these people, and now, we dismissed it,'" Hunsader said. "Obviously they didn't follow up. I felt everything I sent to them went into a black hole," said Hunsader, who runs Nanex, a four-person data provider shop in Chicago.
Mosaic(MOS) Profit Nearly Triples, But Misses Street. Mosaic Co (MOS) said on Monday its quarterly profit nearly tripled as demand for its fertilizers surged, although results missed expectations and the company's shares fell.
Financial Times:
Call for New Global Currencies Deal. The world’s leading countries should agree a new currency pact to help rebalance the global economy, a leading association of financial institutions has urged. The Institute of International Finance, which represents more than 420 of the world’s leading banks and finance houses, warned on Monday that a lack of such co-ordinated rebalancing could lead to more protectionism. Charles Dallara, IIF managing director, said: “A core group of the world’s leading economies need to come together and hammer out an understanding.”
EU Nations Win a Year's Reprieve on State Aid. European governments will be allowed to provide soft loans and other concessionary support to their banking and industrial sectors for one more year because of the lingering effects of financial crisis, according Europe’s top competition regulator.
Telegraph:
World's Powers Must Head Off Threat of Currency War. The world’s major economic powers must do more to head off the prospect of a global currency war, a body representing the world’s financial institutions has warned.
France won't join the U.S. to push for Chinese government currency policy reforms at the G20 summit in Seoul next month, citing the French ambassador to China, Herve Ladsous.
The Standard:
Chinese Property Tax on 'Hot' Cities First. "Overheated" mainland cities are likely to be the first to be hit with a property tax in a bid to cool the sizzling real estate sector. Beijing announced a second round of tightening measures last Wednesday to curb speculation and stabilize home prices. Shanghai and Shenzhen have already received approval to introduce an annual property tax of 0.3 to 0.4 percent of a home's market value as part of a pilot scheme, said Yang Hongxu, an analyst at Shanghai E-house China Research, citing market sources. Nomura Holdings said authorities may consider introducing a property tax in cities such as Beijing, Shanghai, Shenzhen and Hangzhou, as well as "fully" enforcing the land appreciation tax. Such measures would pull down house prices by 5 to 10 percent by the end of next year, wrote Nomura analysts Alvin Wong and Sunny Tam.
Evening Recommendations
None of note
Night Trading
Asian equity indices are -.50% to +.25% on average.
Asia Ex-Japan Investment Grade CDS Index 116.0 +1.5 basis points.
Asia Pacific Sovereign CDS Index 107.0 -2.5 basis points.
The ISM Non-Manufacturing Composite for September is estimated to rise to 52.0 versus 51.5 in August.
Upcoming Splits
None of note
Other Potential Market Movers
The weekly retail sales reports, weekly ABC Consumer Confidence report, Citi Biotech Day, Johnson Rice Energy Conference, William Blair Growth Stock Conference, (IRM) Investor Day, (FISV) Investor Conference and the (LZ) Analyst Meeting could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly modestly lower. The Portfolio is 75% net long heading into the day.
North American Investment Grade CDS Index 104.73 bps -.22%
European Financial Sector CDS Index 119.05 bps -1.75%
Western Europe Sovereign Debt CDS Index 153.66 bps -.32%
Emerging Market CDS Index 220.43 bps -.31%
2-Year Swap Spread 19.0 -1 bp
TED Spread 14.0 unch.
Economic Gauges:
3-Month T-Bill Yield .15% unch.
Yield Curve 210.0 +2 bps
China Import Iron Ore Spot $141.10/Metric Tonne unch.
Citi US Economic Surprise Index -4.40 +2.0 points.
10-Year TIPS Spread 1.80% -2 bps
Overseas Futures:
Nikkei Futures: Indicating -66 open in Japan
DAX Futures: Indicating +4 open in Germany
Portfolio:
Slightly Lower: On losses in my Biotech, Tech and Medical long positions
Disclosed Trades: Added to my (IWM)/(QQQQ) hedges and then covered them
Market Exposure: 75% Net Long
BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades near session lows despite better economic data and buyout speculation. On the positive side, Disk Drive, REIT and Gaming shares are higher on the day. (IYR) has traded well throughout the day. On the negative side, Coal, Alt Energy, Oil Service, Gold, HMO, Education, Semi, Paper, Steel, Defense and Airline shares are under meaningful pressure, falling more than 2.0%. Small-cap and cyclical shares are underperforming today. The S&P GSCI Ag Spot Index, which led the recent stock rally, is declining another -.64% today. Lumber is falling -2.27%, which puts it below its 50-day moving average. Copper is also falling -.72%. Despite better economic data of late and recent declines, the 10-year yield is falling another -3 bps to 2.48%. The Portugal sovereign cds is rising +2.1% to 406.50 bps and the Spain sovereign cds is rising +.9% to 228.83 bps. This is the first day in quite some time that the market is reacting negatively to negative news out of Europe. The euro's weakness today is noteworthy given the negative news the currency has been ignoring. (MSFT) is weighing on the Naz today on comments from Goldman. Unless this company makes some major changes in direction, the stock will likely head significantly lower over the longer-term as competition mounts. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, profit-taking, rising sovereign debt angst, technical selling and China worries.
Asset-Backed Bond Sales Fall to Lowest in 15 Years as Consumer Cut Back. Sales of bonds tied to consumer debt including credit card payments and car loans may fall short of $100 billion for the first time in 15 years in 2010 as U.S. households seek to save more. Issuance of so-called asset-backed securities linked to household borrowing stands at $80.4 billion, compared with $110.1 billion in the same period in 2009, according to Wells Fargo Securities data. Bond sales tied to credit card payments fell more than 83 percent to $7 billion as lenders funded consumer demand with money from bank deposits rather than tapping the bond market, according to data compiled by Bloomberg. “We are at the mercy of the economy right now,” John McElravey, an analyst at Well Fargo Securities, said in an interview yesterday at Information Management Network’s annual ABS East conference in Miami. “If people have jobs they can go out and spend.”
Beijing Second-Hand Home Sales Fall on Government Curbs, China News Says. Beijing’s second-hand home sales fell to 18 units on Oct. 1 and Oct. 2 combined, from 1,067 on Sept. 30 alone, after the government and provincial authorities stepped up measures to cool property prices, China News said. Home sales in the eastern city of Suzhou dropped to 169 units on Oct. 1 from 519 the day before, and in Hangzhou halved on Sept. 30 from the previous day, the news service said. Zhejiang provincial government said it would tighten the monitoring of developers’ pre-sale funds from November, while Xiamen of Fujian Province limited new home purchases to one unit per household until the end of this year, China News reported.
Corn Falls for Third Day as U.S. Harvest Advances, Supply Hits 3-Year High. Corn slumped for a third day to a one-month low after the Department of Agriculture said supplies left from last year’s crop climbed to the highest level since 2006, and as dry weather speeds the U.S. harvest. Inventories on Sept. 1 rose 2 percent from a year earlier to 1.708 billion bushels, the USDA said on Sept. 30. That was 322 million bushels above the agency’s Sept. 10 estimate. About 27 percent of the crop was harvested as of Sept. 26, up from 18 percent a week earlier, the USDA said last week.
Microsoft(MSFT) Cut From Goldman(GS) Buy List on Mobile Weakness. Goldman Sachs Group Inc. analysts cut Microsoft Corp. shares to “neutral,” citing the world’s largest software company’s struggles to gain market share in mobile devices. Microsoft was removed from the bank’s Americas Buy List, with a price target of $28 rather than $32, Goldman Sachs analysts including Sarah Friar wrote in a note to clients. The company needs to win “a firmer foothold in the growing migration to mobile devices” in order to improve investor sentiment, they wrote.
California Budget Plan Draws Skepticism. Rank-and-File Lawmakers Express Doubts About Proposal From Governor, Legislative Leaders to Close $19.1 Billion Gap.
Plosser Voices Concern Over Further Easing. The US Federal Reserve must not launch a new round of asset purchases without setting out what they are meant to achieve, the president of the Philadelphia Fed has warned in an interview with the Financial Times. “I think that before we engage (in further quantitative easing) we need to be very clear about what it is we’re trying to do, how we’re going to go about doing it, how we’re going to measure whether we’re effective at it or not, and how we’re going to communicate that,” said Charles Plosser, who opposes a second round of quantitative easing – nicknamed “QE2” – at this point.
Dollar Gains on Renewed Euro-Zone Worries. The dollar rose against the euro on Monday on renewed worries about the impact of the single-currency region’s ongoing debt woes. The greenback also strengthened against the yen ahead of the Bank of Japan’s monetary policy meeting.
Environmental Protection Agency Rules Could Hurt Barack Obama in 2012. President Barack Obama’s Environmental Protection Agency is putting some hazardous speed bumps on his 2012 electoral road in key swing states. Controversial rules covering everything from power plants to petroleum refiners, manufacturers, coal mines and farmers could come back to haunt the White House in industrial and Midwestern states that carried Obama to the presidency two years ago. Political battlegrounds like Ohio, Pennsylvania and Virginia that Obama won in 2008 will be watching how the EPA moves on climate change. Coal-reliant states such as Missouri — which Obama lost by less than 1 percentage point — will be monitoring clean air rules and coal ash standards. And farm states that Obama carried, including Indiana, Iowa, Minnesota and Wisconsin, are waiting on a proposal to tighten air quality limits for microscopic soot. Obama’s situation is tricky. He campaigned on the need to address climate change and faces pressure on his left to tackle a range of issues that environmentalists complain were neglected by former President George W. Bush. But with EPA regulations expected to come out in rapid-fire succession over the next two years, Republican presidential hopefuls are already adding them to the larger, anti-Obama narrative against expansive government. “Some of the things his administration is proposing are just disastrous in the heartland,” Sen. John Thune (R-S.D.) said in an interview. “If he has any hope of winning votes in the center of the country, then he is going to have to reconsider a lot of these things the EPA and some of his agencies are trying to get done.”
GOP Ready to Rumble on Health Law. If Republicans regain control of the House, the one issue likely to be most transformed is the health care overhaul. The debate on and passage of the new law became a galvanizing call for the GOP’s depressed and disillusioned base last summer and will be a driving force in November for voters who oppose the law.
Task Force Undermines Freedom. Americans know best what kind of health care coverage is right for them and their families. They should be able to work with their own trusted physicians to determine the treatments and services that meet their needs. Unfortunately, the health reform law, which was rushed through Congress and forced on the American public, empowers the government to make decisions that should be left to doctors and patients.
Reuters:
Iraq Raises Proven Oil Reserves Figure by 25%. Iraq raised its proven oil reserves figure by a quarter on Monday in a bid to match the clout of leading producer Saudi Arabia and strengthen its case for OPEC to grant it a higher output quota. New estimates at West Qurna and Zubair fields helped push the figure to 143 billion barrels. That would allow Iraq to surpass Iran to become the world's No.3 reserves holder after Saudi Arabia and Venezuela, according to BP (BP) data.
US Clean Energy Loan Chief Says Ramping Up Lending. The former venture capitalist who now is in charge of about $70 billion in federal funding for alternative-energy projects is trying to bring a dash of private-sector efficiency to his new government job.
Financial Times:
Ireland's Economic Outlook Worsens. Ireland’s economic outlook worsened on Monday as the country’s central bank cut its growth forecast for this year, with gross domestic product now set to increase 0.2 per cent against previous forecasts of 0.8 per cent. The slowing economy will compound the challenges the Fianna Fáil-led government faces in framing this year’s budget, which is critical to restoring investor confidence in Ireland’s fiscal consolidation plan.
Naftemporiki:
Greece's government will increase objective property values by an average of 30% from Jan. 1 to boost state revenue by at least 400 million euros. In neighborhoods where the market value is close to the objective value the increase will be between 10% and 20% as of Jan. 1. The increase will be over 50% in coastal areas and areas earmarked to be included in town plans.
Cinco Dias:
Compania Espanola de Petroleos SA said gasoline demand is declining, citing an interview with CEO Dominque de Riberolles. "The situation is somewhat better than last year though demand is still falling," the executive said. "Gasoline demand is falling 6% and diesel once again declined in July and August .6%."
