Weekend Headlines
Bloomberg:
- Former Federal Reserve Chairman Alan Greenspan said today he expects a quick rebound in jobs because companies are stretched to expand production after workforce cuts made during the recession. Greenspan said on NBC’s “Meet the Press” program that businesses were “very frightened” by the financial crisis and deterioration of the U.S. economy early this year and cut their payrolls so deeply that they will have to begin hiring soon. “We have a level of employment at this stage which is barely adequate to staff the level of output,” Greenspan said. “It seems to me virtually inevitable -- if nothing else were to happen -- that employment would start to come back fairly quickly.” Greenspan said the country is experiencing a divide between “two economies,” one for large businesses and wealthy individuals and the other for small businesses, small banks and the unemployed. “I’m very concerned about where the job machine is relative to small businesses, which are doing miserably,” Greenspan said. “They’re having great difficulty financing and great difficulty creating jobs.”
- A Democratic compromise over health- care legislation came under attack today from within the party as 10 senators voiced concern the plan would make it harder for the elderly to get medical care. The senators were responding to a proposal to expand the Medicare program, which serves Americans age 65 and over, to cover people as young as 55. The 10 lawmakers demanded changes in Medicare reimbursement rates, complaining that Medicare currently underpays states with more efficient medical care, driving up the number of physicians unwilling to treat patients in the program. The letter provided more fodder for Republicans who argue that the legislation doesn’t meet a central goal President Barack Obama has set for slowing the increase in health costs and expanding access to medical care. The Democrats’ letter came a day after a report by the Centers for Medicare and Medicaid that found the Senate bill would increase total spending on health care and may contain “unrealistic” promises to save money on Medicare. “We appreciate the rationale underlying the proposed Medicare expansion,” the lawmakers wrote in the Dec. 11 letter, “but fear that provider shortages in states with low reimbursement rates such as ours will make such a program ineffective, or even worsen the problems these states are experiencing.”
-The dollar advanced to a two-month high against the euro as a bigger-than-forecast increase in retail sales and consumer sentiment indicated the U.S. economic recovery may be gaining momentum. “We are dollar bulls,” said David Forrester, a currency economist at Barclays Plc, in an interview on Bloomberg Television. “Data will continue to surprise on the upside.” “That the dollar strengthened against the euro changes this risk-on, risk-off scenario,” said Andrew Busch, a global currency and public policy strategist at Bank of Montreal in Chicago. The trade “will morph into something else.” “I can imagine economic data turning in favor of the U.S. compared with Europe or Japan,” said Sebastien Galy, a currency strategist at BNP Paribas Securities SA in New York. Greece and Ireland are in an “intolerable” economic situation that may lead to bailouts and exits from the euro region before the end of 2010, Steve Barrow, head of Group of 10 foreign-exchange strategy in London at Standard Bank, wrote in a research note yesterday.
- The euro is poised to decline to a three-month low of $1.4446, Gaitame.com Research Institute Ltd. said, citing trading patterns. The 16-nation currency, which climbed to a one-year high of $1.5144 last month, has entered a near-term downtrend as the spot price has fallen below its 60-day moving average, said Tsuyoshi Okada, managing director at the research unit of Japan’s largest foreign-exchange margin dealer in Tokyo. “The charts are now showing signs of change for the euro, and herald an end of its rising trend,” Okada said. “Should the decline of the euro gain traction, the immediate target will be mid-$1.46 and the next target will be the $1.4446 level.”
- Professional golf and its sponsors face an undetermined period of uncertainty following Tiger Woods’s decision to temporarily leave the sport he dominated. Woods said in a statement on his Web site that his “infidelity” has hurt his family, and he needed to focus on being a “better husband, father and person.” He said he was leaving competitive golf “indefinitely.”
- Morgan Stanley’s(MS) James Gorman hired his former Merrill Lynch & Co. colleague Greg Fleming to oversee investment management and global research, according to a person familiar with the matter.
- Goldman Sachs Group Inc.(GS), which took $10 billion in U.S. bailout funds last year, shouldn’t get taxpayer support if the firm focuses on trading over banking, according to former Federal Reserve Chairman Paul Volcker. The “safety net” provided by the U.S. government “should not be extended beyond the core commercial-banking business,” Volcker, 82, said in an interview yesterday at Deutsche Bank AG’s Berlin office, where he was attending a conference. “They can do trading and do anything they want, but then they shouldn’t have access to the safety net.”
- The Dogs of the Dow strategy of buying the 10 Dow Jones Industrial Average stocks with the highest dividend yields has failed to deliver market-beating returns in 2009, according to Bespoke Investment Group LLC. The 10 dogs have returned 11 percent on average, compared with the 29 percent profit from the other 20 Dow companies and 23 percent gain from the entire measure, Bespoke said in a report yesterday titled “Dogs Remain Dogs in 2009.”
- Banks exiting the U.S. financial bailout program can retain tax deductions for losses when the government sells stakes in the companies, the Internal Revenue Service said. The ruling will prevent the value of banks’ shares from being discounted on concern the tax deductions may no longer apply after Treasury sells them, said Nayyera Haq, a Treasury Department spokeswoman.
- The World Bank is confident authorities in China recognize the threat of asset bubbles in the world’s third-largest economy, said Juan Jose Daboub, managing director of the international lender. “With any kind of stimulus there is always a risk of overdoing it or prolonging it for too long, and so the risk that you’re highlighting is there,” Daboub, who is on an official visit to Egypt, said at a news conference today in Cairo. The World Bank believes that Chinese authorities understand the risks of an asset-price bubble and “will take the measures that they believe are more appropriate. They have done so in the past,” he said.
- Congress gave final approval to a $450 billion U.S. spending bill providing an average 12 percent budget increase for a host of government programs amid what polls show is mounting public concern over federal deficits. The Senate voted 57 to 35 today to forward the measure to President Barack Obama. “We have a $12 trillion debt, a debt that our children and grandchildren are going to have to pay, and here we are” approving a 12 percent spending increase, said Senator George LeMieux, a Florida Republican. “Washington is out of control in its spending.” Democrats said the increase, which far exceeds the inflation rate, was needed to pay for important domestic programs. The consumer price index, minus the volatile food and energy components, rose 1.7 percent for the 12 months ending in October. The vote today came amid growing concern over the budget deficit, projected to reach $1.4 trillion in the 2010 fiscal year. A Bloomberg poll released last week found voters consider the deficit the third-most important issue facing the country, behind the economy and health care and ahead of the war in Afghanistan. The measure’s budget increases would spread the additional money across scores of individual programs; the Democrats’ summary of the legislation’s “key investments” ran more than 20 pages. The Securities and Exchange Commission, the Consumer Product Safety Commission, the Federal Trade Commission and federal enforcement programs at the Occupational Safety and Health Administration all would receive double-digit increases. Some programs would be cut, including abstinence-only sex education programs and the Office of Labor-Management Standards, which regulates unions. The bill would establish a binding arbitration process for auto dealers dropped during the bankruptcies of General Motors Corp. and Chrysler LLC. The legislation would also loosen long- standing restrictions on Washington, D.C., regarding abortion, needle-exchange programs and medical marijuana.
- Developing Countries Say 'No Money, No Deal' in Climate Talks. Four days before 110 world leaders fly to Copenhagen to complete a deal to curb global warming, negotiators are far apart on aid to poorer countries and how to verify nations fulfill their pledges to reduce greenhouse gases. Envoys from 192 countries discussing a climate-protection accord in the Danish capital released a draft on Dec. 11 that shows they cannot agree on how to police an agreement. The document contains no subsidies to help developing nations cut carbon-dioxide emissions and adapt to climate change. “No money, no deal,” Selwin Hart, a Barbadian envoy who speaks on finance issues for 43 island and low-lying states, said in an interview. United Nations climate chief Yvo de Boer said developing nations need at least $100 billion a year. Developing countries including China and India will need as much as 100 billion euros ($145 billion) a year in climate aid from 2010 to 2020, New York-based McKinsey & Co. said in a September report. That’s to help avoid “catastrophic” climate change, McKinsey said. Mobilizing of billions of dollars in climate aid from industrialized nations to pay for clean energy in developing countries would be positive for business, Iberdrola SA Chief Executive Officer Jose Ignacio Sanchez Galan said in an interview. “We’ve bet on clean energy, and anything that takes the world in the direction of clean energy is going to be positive for Iberdrola,” he said. That view is echoed by Ditlev Engel, chief executive of Vestas A/S, the largest wind-turbine maker. China and developing nations are demanding that only rich countries have legally binding targets, while some industrialized nations are calling for enforceable reductions for poor countries.
Wall Street Journal:
- Goldman Sachs Group Inc.(GS) played a bigger role than has been publicly disclosed in fueling the mortgage bets that nearly felled American Insurance Group Inc. Goldman was one of 16 banks paid off when the U.S. government last year spent billions closing out soured trades that AIG made with the financial firms. A Wall Street Journal analysis of AIG's trades, which were on pools of mortgage debt, shows that Goldman was a key player in many of them, even the ones involving other banks. Goldman originated or bought protection from AIG on about $33 billion of the $80 billion of U.S. mortgage assets that AIG insured during the housing boom. That is roughly twice as much as Société Générale and Merrill Lynch, the banks with the biggest exposure to AIG after Goldman, according an analysis of ratings-firm reports and an internal AIG document that details several financial firms' roles in the transactions. In Goldman's biggest deal, it acted as a middleman between AIG and banks, taking on the risk of as much as $14 billion of mortgage-related investments. Then Goldman insured that risk with one trading partner—AIG, according to the Journal's analysis and people familiar with the trades. The trades yielded Goldman less than $50 million in profits, which were mostly booked from 2004 to 2006, according to a person familiar with the matter. But they piled risks onto AIG's books, which later came to haunt the insurer and Goldman. The trades also gave Goldman a unique window into AIG's exposure to losses on securities linked to mortgages. When the federal government bailed out the insurer, Goldman avoided losses on its trades with AIG covering a total of $22 billion in assets. Banks wanted protection in case the housing market tanked. Many turned to Goldman, which effectively insured the securities against losses. Then, to cover its own potential losses, Goldman bought protection from AIG, in the form of credit-default swaps. Goldman charged more than AIG for the protection, so it was able to pocket the difference, making millions while moving the default risks to AIG, according to people familiar with the trades. The trades were low risk for Goldman as long as AIG stayed afloat. "It seems shocking to me that Goldman would become so exposed to AIG and kept doing deals with them and laying on the risk," says Tom Savage, a former chief executive of AIG's financial products unit who left in 2001 before the explosive growth of insuring mortgage-debt pools. When Goldman didn't get as much collateral as it wanted from AIG, in 2007 and 2008 it bought protection against a default of AIG itself from other banks. AIG officials were skeptical of the prices Goldman presented, according to the minutes of a February 2008 AIG audit committee meeting, which noted that Goldman was "unwilling or unable to provide any sources for their determination of market prices." The Journal analysis of that document in conjunction with ratings-firm reports shows that Goldman underwrote roughly $23 billion of the $80 billion in mortgage-linked CDOs that AIG agreed to insure. The special inspector general for the Troubled Asset Relief Program, which recently reviewed the New York Fed's effort to stanch collateral calls last year, said Goldman officials said the company believed it would have been fully protected had AIG been allowed to fail because of collateral it had amassed and the additional insurance it had bought against an AIG default. The auditor, however, questioned that conclusion. The report said Goldman would have had a difficult time selling the collateral and that the firm might have been unable to actually collect on the additional insurance. Additional calls for collateral from Goldman and other banks eventually led to AIG's September 2008 bailout and led the New York Federal Reserve two months later to fully cover $62 billion of insurance contracts Goldman and 15 other banks had with the financial products unit of AIG. Goldman's other big role in the CDO business that few of its competitors appreciated at the time was as an originator of CDOs that other banks invested in and that ended up being insured by AIG, a role recently highlighted by Chicago credit consultant Janet Tavakoli.
- Republicans on Friday seized on a report by government actuaries that said the Senate health bill would cause national health costs to rise. The report, compiled by the chief actuary at the Centers for Medicare and Medicaid Services, estimated that total health costs in the U.S. would be $234 billion higher than if the bill weren't passed. President Barack Obama has said Democrats' health plan would reduce the growth of health-care costs. Sen. Chuck Grassley of Iowa, the top Republican on the Senate Finance Committee, said Democratic lawmakers were spending large sums in the health-care bill "to make things worse." Senate Minority Leader Mitch McConnell (R., Ky.) said the report "confirms what we've known all along," arguing that the bill would "increase costs, raise premiums and slash Medicare."
- Citigroup Inc.(C) is nearing an agreement with the U.S. government that will lay the groundwork for the bank to start untethering itself from Washington, according to people familiar with the matter. Citigroup executives are hoping to unveil a multifaceted deal with the government as early as Monday morning, these people said. They cautioned that an agreement hasn't yet been finalized and might not reach fruition by the morning. The deal is expected to call for the New York bank to raise more than $10 billion in new capital by issuing common stock, these people said. Those funds would help Citigroup pay back some of the $20 billion that the Treasury Department injected into the company last year. They also will increase Citigroup's capital, allowing the bank to exit a program in which the government was shielding it from most losses on $301 billion of assets. Citigroup executives also are hopeful that the Treasury will announce that it is preparing to sell at least a portion of the 34% stake held by the government, according to the people familiar with the matter.
- Google Inc.(GOOG) has designed a cellphone it plans to sell directly to consumers s soon as next year, according to people familiar with the matter. The phone is called the Nexus One and is being manufactured for Google by HTC Corp., these people said. It runs Android, the operating system for mobile phones that Google developed, they added.
- Iraq is Wild Card in World Oil Supply. A loosening of supply constraints is the major risk to the expectations of a rebound priced into oil futures, especially as demand growth will likely prove lackluster. The average size of discoveries has been 35% bigger this year compared with last, according to IHS Cambridge Energy Research Associates. Meanwhile, in a nod to the BRIC countries that helped define the last decade, consultants PFC Energy has coined its own acronym for the next: BRINK, or Brazil, Russia, Iraq, Nigeria and Kazakhstan. Brazil has hosted a string of big discoveries, while Russia has defied expectations by overtaking Saudi Arabia's output. Kazakhstan is expanding three major projects, while a tentative peace is allowing Nigeria to start raising output. The wild card is Iraq, where more licenses for foreign oil companies were awarded Friday. Contract terms encourage firms to maximize output quickly. Winners to date aim to boost output from five fields 12-fold to 8.5 million barrels per day. Even if production increased by a more conservative 1.5 million barrels per day by 2015, it could pressure oil prices through unsettling the organization Iraq helped found 39 years ago: the Organization of Petroleum Exporting Countries. OPFC projects the world will require an extra 3.2 million barrels per day from OPEC by 2015 to meet demand. Leaving aside the fact that effective spare capacity is already 5.4 million barrels per day, Iraq's increased production would take up more than half of the extra amount required. OPEC will have to reintegrate Iraq into its quota system eventually. Other members, which have benefited from Iraq's weakened output for years, will be expected to limit their own to make way. The cartel is struggling to maintain discipline as it is. Compliance with quotas hit 58% in November, down from 83% in March, the IEA says. Many members have large development needs. If sovereign-debt concerns ripple out from places like Dubai to squeeze foreign investment elsewhere, the temptation to pump more oil for cash will increase, pressuring prices. What's more, Iraq's grandiose targets reflect its vast reserves and thirst for recognition and funds. It will likely demand a bigger quota than its old pre-Gulf War level of 3.1 million barrels per day. Saudi Arabia, which maintains a large buffer of spare capacity already and whose public finances can better withstand a lower oil price than rivals like Iran, will likely bridle at taking all the pain of accommodating Iraq. It is worth remembering that when oil prices collapsed in 1986 after the second oil shock, it was due to a combination of competing supplies, lackluster demand growth, and a breakdown in OPEC cohesion.
- When tiny Fisker Automotive Inc. hit a financing glitch last year, threatening its plan to build a fancy gasoline-electric hybrid car in Finland, it turned to the U.S. Department of Energy. The DOE had a bolder idea. Why not also step up the company's plans to develop a less-expensive model, and assemble it in a closed U.S. auto plant? Within months, Vice President Joe Biden, the former senator from Delaware, was helping lure the embryonic car company to a shuttered General Motors Co. factory four miles from his house in Wilmington, right across the tracks from Biden Park. Soon, Fisker Automotive, a two-year-old business that has yet to sell a car, won loans from the federal government totaling $528 million. Fisker had joined a flock of other businesses seeking cash from the biggest venture capitalist of all, the U.S. government.
MarketWatch.com:
IBD:
- You can kick out a vendor. But you can't kick out the owner. That's been the logic underlying the strategy of RehabCare Group (RHB) under CEO John Short. With his recent acquisition of Triumph Healthcare, Short's RehabCare has taken its biggest step in the evolution from vendor to owner.
NY Times:
- FedEx(FDX), UPS(UPS) Gear Up for Holiday-Season Delivery Crush.
The Business Insider:
- Matt Taibbi's latest article for Rolling Stone is all about how Obama ran as a progressive, but quickly sold out to Wall Street, bringing back all the old deregulation-happy "Rubinites" from the Clinton administration. What Taibbi has done -- and this is truly impressive -- is expose the disintegration of the left and disappointment it's experiencing in Barack Obama. The comments on Fernholz's piece mainly attack him for being a pro-Obama shill. And again, this is coming from the left (as is Taibbi, of course, but he's smart enough to throw hand grenades at anyone as long as it makes for big articles). The bottom line is that people who aren't so interested in partisan politics -- but actually interested in policy and the choices the President makes -- are increasingly disillusioned. Just as Matt Taibb permanently branded Goldman Sachs as the "Vampire Squid" so too has he successfully exposed the deep fractures on the left, less than a year into Barack Obama's first year.
Business Week:
- Why Tech Bows to Best Buy(BBY). As the last major electronics retailer standing, the chain has unparalleled clout. And CEO Brian Dunn means to use it, shaping technologies and helping to develop products.
Kansas City Star:
- A couple of years ago, supporters of global warming theory began referring to skeptics as “deniers” — implying that anyone who doubted climate change should be lumped with Holocaust deniers. Now the shoe is on the other foot, thanks to the eye-popping e-mail dump that hit the Internet recently and quickly became known as “Climategate.” The response of much of the global-warming “community” has been … denial. A New York Times story on the Copenhagen climate summit declared, “In Face of Skeptics, Experts Affirm Climate Peril.” The U.S. negotiator at Copenhagen, Jonathan Pershing, said the hacked e-mails have “no fundamental bearing” on the summit. Al Gore waved off the controversy as so much “sound and fury, signifying nothing.” Meanwhile, the Environmental Protection Agency went right ahead with its “endangerment finding,” laying the basis for the regulatory equivalent of a tax on greenhouse gases. The e-mails from the University of East Anglia’s Climate Research Unit, however, raise serious questions about the theory of anthropogenic global warming, or AGW. The e-mails don’t prove that AGW is a fraud. Indeed, it’s pretty clear the Earth has been warming. But Climategate is a reminder to policymakers that AGW is still too flimsy a foundation on which to justify the EPA endangerment finding, cap-and-trade or the rich-country shakedown under way in Copenhagen. The CRU e-mail trove lifts the veil on one of climatology’s most important nerve centers. In the messages, some of the world’s leading climate scientists discussed how to blackball dissenting opponents, manipulate data, bully certain editors, thwart freedom-of-information filings and distort the peer-review process that’s supposed to be sacred to science. Within this group, there was much more doubt and disagreement than one would expect given the level of certainty of the U.N.’s global warming pronouncements. In one e-mail, Kevin Trenberth of the National Center of Atmospheric Research admits climatologists “can’t account for the lack of warming” in recent years, “and it is a travesty that we can’t.” Worse, some of the Climate Research Unit’s raw data was discarded, preventing scientists from outside the AGW clique from checking how the CRU adjusted, or homogenized, those readings. The CRU files were a mess, in any case. Perhaps the most damning item in the hacked material is a document filled with the notes of programmer Ian “Harry” Harris, who tried to put the CRU’s computer files and raw data — temperature readings from 1901 to 2006 — in some sort of order. “It’s botch after botch,” he wrote. “… this should have all been rewritten from scratch a year ago. … As far as I can see, this renders the [weather] station counts totally meaningless. … What the hell is supposed to happen here? Oh yeah — there is no ‘supposed.’ I can make it up. So I have.” Last week, Australian Willis Eschenbach found evidence that scientists played games when homogenizing some of the raw data from Australia: They appear to have fiddled with readings to show warmer temperature trends than the data would justify. “People who say that ‘Climategate was only about scientists behaving badly, but the data is OK’ are wrong,” Eschenbach wrote. “At least one part of the data is bad, too.” Clive Crook, who blogs at The Atlantic, initially dismissed Climategate but reconsidered: “The stink of intellectual corruption is overpowering. … this scandal is not at the margins of the politicized IPCC [Intergovernmental Panel on Climate Change] process. ... It goes to the core of that process.” It’s not clear yet where all of this will lead, but as the blogger Richard Fernandez aptly put it, “The smoke of doubt has entered the temple.” At the very least, it’s time for AGW hard-liners to climb down from their pulpits and stop treating every dissent as evidence of evil.
Daily Finance:
- Inside Wall Street: Tiffany(TIF) looks like a gem of a stock.
Washington Post:
- The five men from Northern Virginia under arrest in Pakistan had exchanged e-mails written in code for months with a recruiter for the Pakistani Taliban and had a map indicating they were bound for the tribal area where al-Qaeda is thought to be based, Pakistani police officials said Friday. The Americans, Muslims from the Alexandria area, were wearing the traditional dress when they were arrested Tuesday near Lahore. One had a map in his sock and had circled Miranshah, the main town in North Waziristan, the rugged area where al-Qaeda is said to be located, said Usman Anwar, the police chief whose officers interrogated the men.
Politico:
- A judge in New York ordered that ACORN’s federal funding be restored, rolling back a slew of Congressional actions that sought to stop taxpayer money from flowing to the community group on the heels of a fall full of embarrassments for it. Nina Gershon, a district judge in New York, issued a preliminary injunction directing the department of Housing and Urban Development, the Office of Management and Budget and the Treasury department to disregard a bill signed into law by President Obama that prohibited federal funding of the Association of Community Organizations for Reform Now. ACORN was the subject of bipartisan disdain in September, after undercover videos were released that seemed to show the organization’s employees offering advice on how to break the law. Republicans and Democrats voted to stop federal funding of the group – a measure signed into law by the president on the back of an appropriations bill. In November, the group sued the federal government, claiming that the provision, attached to the legislative branch appropriations bill, was a bill of attainder – unconstitutional legislation that unfairly punishes one group. As part of this lawsuit, ACORN sought a restoration of federal funding. With Friday’s injunction, ACORN stands to begin receiving funds once again. It is also is the second in a string of victories for ACORN. An investigation by former Massachusetts Attorney General Scott Harshbarger largely absolved the organization from any wrongdoings or illegalities in a hidden-video scandal which allegedly showed the organization’s employees offering advice on how to dodge taxes while setting up a prostitution ring of underage illegal immigrants. Republicans are already hammering away at the decision. Rep. Darrell Issa (R-Calif.), a longtime critic of ACORN and author of a report on the group’s problems, framed Gershon as an “activist judge” appointed by former President Bill Clinton. “This left-wing activist Judge is setting a dangerous precedent that left-wing political organizations plagued by criminal accusations have a constitutional entitlement to taxpayer dollars,” Issa said in a news release. “The Obama administration should immediately move to appeal this injunction.”
- Next month Tucker Carlson, the Fox News commentator and one-time CNN “Crossfire” host, along with former Cheney aide Neil Patel, plans on launching The Daily Caller, an ambitious and well-funded conservative web site that Carlson says "will be defined by its reporting, by the new facts it adds." But he's going to have company. Andrew Breitbart, who's already made some dents in what he considers the "Democrat-media complex" in 2009, says he’s going to roll out his own site, Big Journalism, a few days earlier - designed, he says, to report stories that the mainstream media is either missing or willfully ignoring. And that’s not the only competition in the suddenly crowded realm of conservative media. Former Bush speechwriter David Frum launched NewMajority in early 2009—which later became Frum Forum—while news organizations like Fox News and the Washington Times have tried attracting conservative eyeballs with Fox Nation and TheConservatives.com, respectively. Meanwhile, sites popular with Republican activists, tea-party-goers and libertarians—like National Review’s The Corner, Townhall, RedState, HotAir, and Instapundit—continue to attract million of readers unhappy with the Obama administration. “Everyone sees an opening, and they’re all trying to fill it,” said Conn Carroll, assistant director for strategic communications at the Heritage Foundation.
Rasmussen Reports:
zerohedge:
- A few simple questions for Goldman's(GS) Mr. van Praag: Goldman disclosed that it had $352.2 billion in fair value of principal trading instruments at September 30, 2009. How much of this is considered allocated to prop if this is in fact a distinct strategy from principal? Does the firm's FICC revenue line have absolutely no prop trading embedded within it? Goldman made $20 billion in FICC year to date: is none of this $20 billion due to capital at risk, or is it all due to wide bid/ask spreads? What was the pro rata allocation to Goldman Sachs Foundation as a percentage of capital per each trading ticket in 2008? Does GSF have a dedicated trading silo within Goldman? Why did the Goldman Sachs Foundation not participate in Goldman's prop CDS trades? How much did Goldman's prop operations lose in 2008 trading Russell 1000 futures? How much did Goldman's prop operations lose trading all equity, credit and commodity products? When will Goldman clearly and distinctly segregate on its income statement the prop trading profit and losses, if these are in fact unique from "principal" trading as defined, and attach an MD&A to all relevant disclosure? Lastly, we are still hoping to get a seating chart of Goldman's trading floor (via legitimate channels) which clearly discloses flow and prop traders' seats in order to disclose to the general public that flow and prop traders do not share the same information flow, especially that emanating from core clients who tend to move markets the second they announce their trading axes to Goldman's flow traders.
Seeking Alpha:
- 4 Huge Loopholes in the Derivatives Reform Legislation. The world financial system nearly melted down in 2008. This was a result of the interlocking web of exposures between major financial institutions caused by the unregulated and completely opaque over-the-counter (OTC) derivatives market. The U.S. taxpayer was forced to pledge nearly $24 trillion in cash and loan guarantees to avert financial Armageddon. That amounts to approximately $200,000 for every household in America! Even though the system was saved from total collapse, still the economic pain inflicted upon America and the world was devastating. Trillions of dollars in savings were obliterated and millions of jobs were destroyed as the world’s economy was crushed. All of this could have been averted if OTC derivatives had been properly regulated. The risk to our financial system must be eliminated, not simply regulated. We as Americans should not tolerate our system being put at risk. Barely one year after they were staring at Lehman-style bankruptcy, swaps dealers (the perpetrators of the financial crisis) are already rejecting this strong medicine. They are prioritizing their short-term profits and million dollar bonuses over the long-term health of the financial system. In fact, these recipients of TARP money have spent $344 million in 2009 alone to defeat derivatives reform regulation. More than anyone else, Wall Street knows a good investment when they see it. So what is their $344 million buying them? At least 4 humongous loopholes in the derivatives reform legislation being voted on in the House of Representatives this week:
Reuters:
- The top editor of a Chinese newspaper that interviewed U.S. President Barack Obama has been demoted, sources said, in a move they described as fallout from Communist Party censors' anger over its handling of the story. Xiang Xi, the top editor of the Southern Weekend weekly newspaper who interviewed Obama during his visit to China in mid-November, has been named as "executive" editor-in-chief and placed under a new top editor this week after pressure from the ruling Communist Party's propaganda department, said three employees of the paper. They all requested anonymity, saying they feared punishment for speaking about the move, which has also been discussed on Chinese-language Internet sites. Xiang's demotion could revive debate in Washington about the impact of Obama's visit. It underscored the contention between Washington and Beijing over censorship and access during Obama's visit, when U.S. officials' pressed for opportunities for him to speak directly to the Chinese public. "The propaganda department was certainly unhappy about the interview," said Michael Anti, a Chinese blogger and media commentator based in Beijing who follows censorship.
Financial Times:
- Every hedge fund will leave the European Union if proposals to clamp down on the sector’s remuneration policies are adopted, a leading law firm has said. Freshfields Bruckhaus Deringer said if the proposals became law the impact would be “rapid and decisive...no hedge funds will operate from within the EU”. “Hedge funds are much more mobile than banks. It’s much easier for three guys in Mayfair to pack their bags and move to Geneva,” said Michael Raffan, head of Freshfields’ financial services group. As a result, Freshfields said the “unobservable” part of the hedge fund industry, outside of major jurisdictions, would attract market share and become more risky from a systemic perspective.
- The value of global hotel investment deals has fallen by two-thirds this year but the market will begin a gradual recovery in 2010, according to an annual review of transactions by Jones Lang LaSalle Hotels. The deals adviser estimates a range of $11bn to $13bn for hotel deals next year, fed by the trade of single hotel assets of up to $100m, but there will be few big portfolio transactions. Asian conglomerates looking for prime hotel assets in key markets such as the US and the UK and taking advantage of currency movements will lead next year’s recovery, JLL Hotels predicts. They will be joined by sovereign wealth funds from the Middle East and Asia, which will want to place capital in hotels to hedge against inflation. New investment vehicles are emerging to buy hotel assets in the absence of traditional lending. Public flotations, rights issues and real estate investment trusts will also push along acquisitions but JLL Hotels said the size of such deals will pale in comparison to the scale of commercial mortgage-backed securities that fed the 2007 peak. The hospitality industry has, by and large, avoided large foreclosures this year, propped up by lenders willing to extend loans to hard-pressed hotel owners and recapitalise debt. Arthur de Haast, chief executive of JLL Hotels, said: “As more assets are placed under the control of banks, we expect more of the upcoming sales activity to be driven by banks, which will provide a lift to hotel transaction volumes. “Particularly in the US and Europe, banks are reviewing their loan portfolios and determining their next steps. But the number of distressed assets on the market will not come in form of a tidal wave.”
- Iraq is on course to overtake Iran as the holder of the world’s second-largest proven oil reserves, solidifying its position as the energy industry’s new frontier in the scramble to secure fresh resources. Baghdad agreed on Friday to deals with Royal Dutch Shell and China’s CNPC for two large oilfields, following on from similar accords with ExxonMobil, Eni and BP . On Saturday, Lukoil sealed a deal on the West Qurna field. Consultants who have analysed the agreements struck by Baghdad said the contracts underlined the companies’ confidence that they would be able to use modern seismic and drilling technology to get far more oil out of the fields than had previously been thought possible. Iraq’s proven reserves now stand at 115bn barrels, below Iran’s 137bn and Saudi Arabia’s record 264bn. But Iraq’s reserves data dates from the 1970s, before the improvements in technology that transformed the industry. Raad Alkadiri, an Iraq expert at PFC Energy in Washington, said the companies offered Iraq very good terms in the deals because they believed that the oilfields held more recoverable oil than was commonly assumed. A second consultant, Falah al-Khawaja, who spent 41 years working in Iraq’s oil sector before becoming an independent consultant, calculated on the basis of the bids that Iraq would overtake Iran in proven reserves in three years. “These are not small companies. They have been studying Iraq for some time,” he said. Mr Alkadiri warned that the resurgence of Iraq as a significant oil producer would cause problems within Opec, as the oil cartel would eventually have to reduce the production quotas of many of its members to accommodate Iraq. “The Iraqis are making it clear that they no longer see themselves in parity with Iran. They are eyeing themselves being potentially on par with Saudi Arabia,” Mr Alkadiri said. Iraq will not necessarily produce oil at full capacity when the deals it is negotiating with global majors take its crude output potential to 12m barrels a day.
TimesOnline:
- Confidential intelligence documents obtained by The Times show that Iran is working on testing a key final component of a nuclear bomb. The notes, from Iran’s most sensitive military nuclear project, describe a four-year plan to test a neutron initiator, the component of a nuclear bomb that triggers an explosion. Foreign intelligence agencies date them to early 2007, four years after Iran was thought to have suspended its weapons program. An Asian intelligence source last week confirmed to The Times that his country also believed that weapons work was being carried out as recently as 2007 — specifically, work on a neutron initiator. The technical document describes the use of a neutron source, uranium deuteride, which independent experts confirm has no possible civilian or military use other than in a nuclear weapon. “Although Iran might claim that this work is for civil purposes, there is no civil application,” said David Albright, a physicist and president of the Institute for Science and International Security in Washington, which has analyzed hundreds of pages of documents related to the Iranian program. “This is a very strong indicator of weapons work.”
Weekend Recommendations
Barron's:
- Made positive comments on (COH), (QCOM), (RIMM), (CAT), (BAC), (BEN), (AXA) and (NKE).
- Made negative comments on (AMZN).
Citigroup:
- Upgraded (WRI), (UDR), (PSA), (KRG), (CSA) and (KRC) to Buy.
- Downgraded (OFC), (KIM) and (HIW) to Sell.
Night Trading
Asian indices are -.75% to +.25% on avg.
S&P 500 futures -.20%.
NASDAQ 100 futures -.21%.
Morning Preview
BNO Breaking Global News of Note
Yahoo Most Popular Biz Stories
MarketWatch Pre-market Commentary
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Stock Quote/Chart
WSJ Intl Markets Performance
Commodity Futures
IBD New America
Economic Preview/Calendar
Earnings Calendar
Who’s Speaking?
Upgrades/Downgrades
Politico Headlines
Rasmussen Reports Polling
Earnings of Note
Company/Estimate
- (PAY)/.25
- (AZPN)-.27
Upcoming Splits
- (NEOG) 3-for-2
- (UHS) 2-for-1
Economic Releases
- None of note
Other Potential Market Movers
- The TAF auction, Roth Capital Medical Device Conference, (SYY) investor day and the (IMGN) analyst call could also impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and commodity stocks in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the week.
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