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Crude oil fell to a five-month low below $106
Oil Falls as Companies Prepare to Resume Output After Hurricane
By Grant Smith
Sept. 2 (Bloomberg) -- Crude oil fell to a five-month low below $106 as oil companies prepared to resume production from rigs closed by Hurricane Gustav.
Royal Dutch Shell Plc, Total SA and ConocoPhillips said they were inspecting offshore U.S. Gulf platforms today. Oil, down more than $40 from its July record, dropped as Gustav spared U.S. Gulf states the destruction caused by Hurricanes Katrina and Rita in 2005.
``The absence of serious structural damage from Gustav when the market was braced for the worst has caused prices to turn decisively downwards,'' said Christopher Bellew, a senior broker at Bache Commodities Ltd. in London. ``As technical selling takes hold, it looks likely we'll breach $100.''
Crude oil for October delivery fell as low as $105.46 a barrel, down 8.7 percent from the close of Aug. 29 on the New York Mercantile Exchange and the lowest since April 4. The contract traded at $106.97 at 9:47 a.m. London time.
Today's trading is combined with yesterday's for settlement purposes because of the Labor Day holiday in the U.S.
Shell, Europe's largest oil company, plans to redeploy a limited number of workers to its offshore platforms in the Gulf of Mexico, the company said in a statement.
Louisiana refineries shut down by Hurricane Gustav may take about 10 days to resume operations because of a lack of power, stunting fuel production at a time when regional gasoline inventories are at a 10-month low.
`Minor Damage'
ConocoPhillips, the second-largest U.S. refiner, said its 247,000 barrel-a-day Alliance refinery in southern Louisiana sustained ``minor damage'' and a complete assessment, including a flyover inspection of the refinery, would be made later today, spokesman Bill Tanner said by telephone.
Workers from more than 70 percent of the platforms and rigs in the Gulf were evacuated as Gustav approached, according to the U.S. Minerals Management Service. About 1.3 million barrels a day of oil and 7.06 billion cubic feet of gas was shut, all of the area's offshore oil output and 95 percent of gas production.
``It's a big surprise that Gustav wasn't as powerful as people thought,'' Jonathan Kornafel, a director at Hudson Energy Capital in Singapore, said in an interview with Bloomberg Television. ``We've seen this before with hurricanes, where the market comes off strongly once the storm makes landfall.''
Storm Downgrade
Prices jumped to $118 yesterday as Gustav crossed the Gulf of Mexico as a Category 4 hurricane, the second-highest ranking. The storm eased as it neared shore southwest of New Orleans. The system was subsequently downgraded to Category 2.
Gustav's winds slowed to about 45 miles per hour (120 kilometers per hour) at 1 a.m. local time, the National Hurricane Center said.
The center of Gustav, now downgraded to a tropical storm, was about 30 miles west of Alexandria, Louisiana, and may cross into northeastern Texas tomorrow.
As much as 20 percent of oil and gas production that was shut because of Hurricane Gustav may be restored by this weekend, Louisiana's Governor Bobby Jindal said yesterday at a press conference in Baton Rouge, Louisiana.
Brent crude oil for October settlement fell as much as $5.27, or 4.8 percent, to $104.14 a barrel on the ICE Futures Europe Exchange. It was at $104.95 at 9:30 a.m. London time. The contract had risen as high as $110.45 today.
To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net;
Last Updated: September 2, 2008 04:48 EDT
Refer to this articl at
http://www.bloomberg.com/apps/news?pid=20601087&sid=aRdCDVm0LT4E&refer=home#
The latest sentiment survey data shows that retail investors, mutual fund investors and stock market newsletter writers are all at multi-year bearish extremes on the US stock market. These data strongly suggest that, although the trend in the US stock market is clearly bearish, further downside from here is probably limited at best without at least a corrective rally first.
- FWIW, latest update from a newsletter I follow, no links or charts
buffet reportedly increased stake in WFC - that should help
Buffet told Cnbc Anchor Becky Quick on Cnbc Squawk Box Live that he increased his stake in one of the stocks (AXP or WFC) but firmly refused to state which one.
I watched the entire interview live.
European Bonds Rise for 3rd week; Less Likely ECB will raise rates
By Lukanyo Mnyanda
Aug. 16 (Bloomberg) -- European government bonds advanced for a third week as mounting evidence the region's economy is contracting made it less likely the European Central Bank will raise interest rates.
The gains sent yields to the lowest level in 12 weeks. The European Union said Aug. 14 gross domestic product fell 0.2 percent in the second quarter. Separate data showed the German and French economies shrank. Bonds stayed higher after a private poll yesterday showed optimism about Germany's economic outlook fell in June to the lowest level in more than five years.
``We expect the euro-area economy to cool further and we may see the ECB preparing to cut rates,' said Niels From, chief analyst in Copenhagen at Nordea Bank AB, Scandinavia's biggest lender. ``Risks for the economy are still on the downside and any rise in yields will be temporary.'
The yield on the 10-year German bund, Europe's benchmark government security, fell 1 basis point to 4.19 percent by 4 p.m. in London. It dropped 7 basis points this week, after sliding to 4.18 percent on Aug. 13, the lowest level since May 21. The price of the 4.25 percent bond due July 2018 gained 0.53 this week, or 5.3 euros per 1,000-euro ($1,473) face amount, to 100.42. The yield on the two-year German note was at 4:01 percent.
The 10-year yield may drop to 4 percent in 12 months, while that on the two-year note may slip to 3.7 percent, From said.
Traders have reduced bets the ECB will raise interest rates a second time this year, with the implied yield on the December Euribor futures contract dropping 2 basis points since Aug. 1, to 5.02 percent.
Rates Outlook
UBS AG, the world's second-biggest foreign-exchange trader, expects the ECB to keep interest rates on hold through the rest of 2008, changing an earlier prediction for an increase in borrowing costs in September. Economists at the Zurich-based bank said growth slowed ``more rapidly than initially expected' and policy makers will lower rates in the first quarter of next year, according to a client note yesterday.
The difference in yield, or spread, between 10-year bunds and similar-maturity U.S. Treasuries was at 29 basis points yesterday, down from 41 basis points July 31, reflecting falling investor expectations that the ECB will lift rates.
Analysts and politicians are talking down the economy and this may have ``a negative impact on business and consumer sentiment,' the International Herald Tribune cited ECB policy maker Juergen Stark as saying Aug. 14.
German Optimism
The share of people who see Germany in an economic decline rose to 45 percent, from 26 percent in June, according to a Forschungsgruppe Wahlen poll for ZDF television. Fourteen percent of respondents said the economy is in an upswing, down from 26 percent in June, ZDF said yesterday.
Euro-region growth will be ``particularly weak' through the second and third quarters, ECB President Jean-Claude Trichet said Aug. 7, when the central bank kept its main interest rate at 4.25 percent, the highest level in seven years.
The Ifo research institute will cut its forecast for German economic growth this year to about 2 percent from 2.4 percent, Wirtschaftswoche reported yesterday, citing an interview with Hans-Werner Sinn, Ifo's president.
Bonds rallied as the EU said the region's economy contracted for the first time since the introduction of the euro in 1999 during the second quarter. Another report showed German GDP fell an adjusted 0.5 percent from the first quarter, when it rose a revised 1.3 percent.
Breakeven Rate
Index-linked bonds signaled investors are reducing their inflation expectations, with the difference in yield between the five-year French inflation-protected note and its regular counterpart falling 2 basis points yesterday to 2.19 percentage points. The difference, the so-called breakeven rate, was at a record 2.83 percentage points on July 3.
Gains by bonds may be limited as some investors bet yields don't reflect the risk of the ECB raising rates to curb inflation, which quickened to 4.1 percent last month, more than twice the bank's 2 percent ceiling.
``It's too early to completely price out the risk of the ECB raising rates,' said Andre de Silva, global deputy head of fixed-income strategy in London at HSBC Holdings Plc, Europe's biggest bank by market value. ``Inflation is stubbornly high and we might see a flatter curve.'
The 10-year bund yielded 18 basis points more than the two- year note, which is more sensitive to the interest-rate outlook, a 3 basis-point narrowing of the spread since Aug. 8.
European government bonds returned 2.3 percent this year, while U.S. debt earned 3.3 percent, according to Merrill Lynch & Co.'s EMU Direct Government and U.S. Treasury Master indexes.
To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
Last Updated: August 16, 2008 02:30 EDT
Refer to this article at:
http://www.bloomberg.com/apps/news?pid=20601085&sid=a4Faq.5xbyzg&refer=news#
Pound Declines 11th Day Against Dollar, Slides for Fourth Week
By Kim-Mai Cutler and Andrew MacAskill
Aug. 16 (Bloomberg) -- The pound slid for an 11th day against the dollar yesterday, the longest run of declines in at least 37 years, on speculation a recession will force the Bank of England to cut interest rates.
The U.K. currency posted its fourth weekly drop after Bank of England Governor Mervyn King said Aug. 13 there was a ``chill in the economic air' and a report showed unemployment climbed in July by the most in almost 16 years. Growth is being hurt as tourism flags and tax revenue fall. The pound tumbled about 6 percent since July 31.
``These are ferocious moves,' said Simon Derrick, chief currency strategist in London at Bank of New York Mellon Corp. ``The consensus has shifted. The talk three or four weeks ago was whether the central bank would hike rates. Now we've cemented the idea that a rate cut may come sooner.'
The pound dropped 0.3 percent to $1.8650 in London, after falling as much as 1 percent, from $1.8698 on Aug. 14. The 11-day run was the longest since at least January 1971. The currency, poised late yesterday for a decline of about 3 percent in the week, tumbled to a more than two-year low. The pound also traded at 78.73 pence per euro, from 79.28 pence the day before.
Britain's currency may recover to $1.90, though investors should still sell it against the dollar over the longer-term, Derrick said.
The U.K. economy will expand about 0.1 percent on a year-on- year basis in the first quarter of 2009, according to central bank forecasts published Aug 13. Its previous prediction was 1 percent. Growth has sputtered as house prices plunged. The property market came to a ``virtual standstill' in July, the Royal Institution of Chartered Surveyors said this week.
Inflation Concern
At the same time, inflation running at 4.4 percent, the highest in at least 11 years, has limited the central bank's ability to reduce interest rates to revive the economy.
Traders pared bets that the 5 percent benchmark interest rate will be left unchanged or raised. The implied yield on the March short-sterling futures contract dropped to 5.20 percent on Aug. 15 from 5.44 percent at the end of July.
The pound fell about 11 percent since reaching a 26-year-high of $2.1161 on Nov. 9 as the Federal Reserve slashed interest rates seven times to 2 percent from 5.25 percent since September. The BOE cut its main rate by 0.75 percentage point in the period.
``The market had thought the Fed had blundered while the Bank of England stood firm on inflation,' said Derrick. ``Now it's thinking the Fed had it absolutely right and has positioned the U.S. economy to cope far better than the U.K. will be able to do. There has been a fundamental shift in thinking.'
Tourism Dropping
The number of foreign tourists visiting the U.K. in the second quarter fell as financial concerns affect the economic outlook in other European countries, according to Britain's Office for National Statistics. Visits by overseas residents dropped 5 percent from the previous three months, seasonally adjusted, and in the year through June visitor numbers declined 3 percent.
Merrill Lynch & Co. booked $29 billion of losses from U.S. subprime mortgages and collateralized debt obligations through its U.K. unit, making it unlikely it will pay British taxes for years to come. Most of the losses were recorded this year, including $5 billion from the sale of $30.6 billion in collateralized debt obligations, the New York-based firm said in an Aug. 5 filing with the U.S. Securities and Exchange Commission.
``We are seeing the start of what we believe is going to be an aggressive move lower in yields and also the pound as the bearish developments in asset markets and the economy continue to overwhelm,' a team led by Tom Fitzpatrick, global head of currency strategy in New York at Citigroup Global Markets Inc., wrote in an investor report Aug. 14.
Rebound Due?
Technical indicators suggested the pound may be due for a recovery. The 14-day relative strength index fell to 16.2 yesterday, similar to ``Black Wednesday' in 1992, when the pound was forced out of the Exchange Rate Mechanism that tied its value to other European currencies. A reading below 30 can signal a change in price direction.
The pound's losing streak is the longest since at least 1971, when Britain was two years away from joining the European Economic Community, a precursor of the European Union, and U.S. President Richard Nixon ended the so-called gold standard. The pound averaged about $2.44 that year.
This month's decline may deepen the unpopularity of Prime Minister Gordon Brown, whose Labour Party lags behind the opposition Conservatives in opinion polls. Labour has been criticized because of slower economic growth amid rising food and fuel prices.
``The Prime Minister's rating has just been in a downward direction and it is picking up pace,' said Greig Baker, research director at the polling company ComRes.
Bonds Rise
Government bonds rose, with the yield on the 10-year gilt falling 6 basis points to 4.58 percent. The yield dropped 11 basis points in the week. The price of the 5 percent security due March 2018 rose 0.44, or 4.4 pounds per 1,000-pound ($1,865) face amount, to 103.23. The yield on the two-year gilt, which is more sensitive to the outlook for interest rates, dropped 3 basis points to 4.53 percent, down 14 basis points since Aug. 8. Bond yields move inversely to prices.
The pound is already weaker than the level at which it's forecast to end 2008 against the dollar. The currency will be worth $1.89 and 80 pence per euro by year-end, according to the median forecast of analysts and strategists surveyed by Bloomberg.
The yield on the 10-year note will end the year at 4.87 percent, according to a separate survey.
The pound fell 6.2 percent versus the dollar this year, after being little changed against the U.S. currency as recently as July 31. It's down 6.7 percent against the euro in 2008.
To contact the reporters on this story: Andrew MacAskill in London at amacaskill@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net;
Last Updated: August 16, 2008 02:00 EDT
Refer to this article at:
http://www.bloomberg.com/apps/news?pid=20601085&sid=aBw8RFQLDGgc&refer=news#
Gold, Silver Slump, Leading Commodities Drop on Dollar, Growth
By Feiwen Rong and Dave McCombs
Aug. 15 (Bloomberg) -- Gold plunged below $800 an ounce, silver dropped as much as 12 percent and oil, corn and copper slumped as the dollar's rebound reduced the appeal of commodities after a six-year boom.
Palm oil tumbled as much as 9 percent, and rubber and wheat fell as the dollar headed for its longest winning streak in more than two years and on concern a spreading global economic slowdown will reduce demand for raw materials.
Commodities, measured by the Standard & Poor's GSCI index, have tumbled 21 percent from their record July 3, descending into a bear market. Oil traded near its lowest for more than three months, gold for eight months and silver for almost a year. Copper and corn reached six-month lows this week.
``Prices have made a peak,'' said investor Marc Faber, 62, who publishes the Gloom, Boom & Doom Report. ``Whether that is a final peak or an intermediate peak followed by higher prices, we don't know yet. It could go lower,'' he said by phone today from Chiang Mai, Thailand.
Gold fell to $782.27 an ounce, its lowest since Dec. 3, at 9:52 a.m. London time today. Silver's 12 percent drop was the most since June 2006 and the metal traded at $12.905 an ounce, down 9 percent.
``It's a big shakeout in gold and silver for people who have been long but don't really believe in the commodities,'' said Mario Innecco, a trader at MF Global Ltd. in London. ``If you do it speculatively, with leverage, I don't recommend buying it now.''
Hedge Funds
Gold has dropped 24 percent from its record $1,032.70 an ounce on March 17 and silver has slumped 40 percent from its $21.3550 peak the same day.
``I expect commodity prices to remain subdued until mid- 2009,'' said Arjuna Mahendran, head of investment strategy at HSBC Private Bank in Singapore. ``The major issue in commodities is the proliferation of ETFs and hedge funds. As they unwind positions, this leads to the price overshooting.''
The dollar has climbed 5.3 percent against the euro this month and reached a 5 1/2-month high today, heading for its fifth weekly gain. U.S. consumer prices rose at the fastest pace in 17 years in July, reducing the ability of the Fed to lower interest rates should the economic slowdown deepen.
Gold's rally has been ``dollar-driven probably because we are supposedly seeing more writedowns in the European banks,'' Charles Dowsett, head of structuring and trading of precious metals at ABN Amro Holding NV, said by phone from Sydney. ``We could see gold go all the way down to $750 an ounce.''
Possible Rebound
Gold may rebound from a slump and rally through 2010 as fabrication demand rises and on expectation the dollar will resume its decline against the euro, Citigroup Inc. said, forecasting the metal to average $950 next year and $1,000 in 2010.
``Longer term, we would not be surprised to see gold double,'' the bank's analysts John Hill and Graham Wark wrote in a report. ``We would be aggressive buyers at current levels expecting gold to work higher through 2009/10.''
Crude oil for September delivery dropped as much as $2.26, or 2 percent, to $112.75 a barrel on the New York Mercantile Exchange, and traded at $113.10 at 9:58 a.m. London time. Copper fell 2.4 percent to $7,207 a ton on the London Metal Exchange, corn declined 2.8 percent to $5.61 a bushel, and palm oil tumbled as much as 8.7 percent to 2,392 ringgit ($714) a ton.
To contact the reporters for this story: Dave McCombs in Tokyo at dmccombs@bloomberg.netFeiwen Rong in Singapore at Frong2@bloomberg.net
Last Updated: August 15, 2008 05:01 EDT
http://www.bloomberg.com/apps/news?pid=20601087&sid=aOMuhl.DQSpw&refer=home#
Goldman Sachs turns bullish on mighty US Dollar.
Goldman Sachs for bearish on US Dollar for 10 years in a row.
- Maria Bartimoro on Cnbc Live
Inflation Bulls - Be careful here.
S&P 500 Index (SPX) Chart Analysis
Chart Link:
http://i538.photobucket.com/albums/ff341/nayan32/SPX_080810_daily.gif
Last week we wrote:
"...Four triple digit Dow days in a row, with 200+ swings the norm. That is the definition of volatility but then, by week's end, there was no change in the index. This is a market in turmoil and a market with no direction. A market that is moving according to the emotions of news events but has no definitive trend, though we do clearly have some upside in the charts, however small."
This week:
The volatility continued into this week with, again, triple digit Dow days becoming almost the norm. After a substantial sell off on Thursday that appeared to be almost rally ending in scope and certainly in the minds of the financial newscasters, the market posted a 300+ point advance on Friday to end the week.
Yes oil prices decreased and yes that was bullish, but Friday's rally showed a change in sentiment from bearish to bullish that will likely keep prices rising awhile longer.
The daily chart of the S&P 500 Index - SPX (below) is clearly showing the index to be in an uptrend, with the declining days, however ugly, ending at higher intra-day lows and creating a solid advancing trend support line (green).
No matter the volatility and no matter the news, the market has been moving higher in steady fashion since the July 15th lows.
In last week's analysis we pointed out the rising lows but mentioned there had not been any appreciable gains for two weeks. The chart was bullish but there was one thing lacking, new highs. This week we had those new highs.
We continue to look for the market to run into a wall around the SPX 1320-1347 levels that we have labeled as resistance in the below chart.
Though the stock market typically climbs a wall of worries as traders like to say, nevertheless the specter of inflation and potential rising interest rates in coming months make a long term trend unlikely.
- FWIW, Weekend Update from a newsletter I follow, no links but chart link, Yep
US dollar index touched the highest since February 2008
Bloomberg reports: The euro fell the most in almost eight years, pushing the currency to a six-month low against the U.S. dollar, as traders pared bets the European Central Bank will raise interest rates as the economy slows.
The euro dropped below $1.50 for the first time since February after ECB President Jean-Claude Trichet yesterday said economic growth will be ``particularly weak' through the third quarter. An index that tracks the dollar against the currencies of six U.S. trading partners touched the highest since February. Crude oil fell to a three-month low, silver reached its cheapest since January and copper headed for its biggest weekly drop since March, easing inflation concerns.
Europe's shared currency tumbled 2.08 percent to $1.5005 at 5 p.m. in New York and reached $1.499, the lowest level since Feb. 26, from $1.5325 yesterday. The slide was the biggest one- day drop since Sept. 6, 2000, when the currency dropped the most since the 1999 introduction of the euro.
Against the yen, the European currency slipped 1.4 percent to 165.38, from 167.70. The dollar rose 0.67 percent to 110.18 yen after touching 110.36, the strongest since Jan. 2.
The euro's decline below $1.53 and the break of the 200-day moving average at $1.5226 marks a significant change in sentiment for the dollar. Since reaching a record high of $1.6038 on July 15, the euro has dropped 6.4 percent.
Crude oil, metal and crop prices fell as the dollar climbed, reducing the appeal of commodities as a currency hedge. Oil has declined to $115.15 a barrel since touching the record of $147.27 on July 11.
Full Story: [url http://www.bloomberg.com/apps/news?pid=20601100&sid=ayPzWDmWbnH0&refer=germany]
-----
It looks like Bernanke may be out of The Box. Huh !
Today - Option Activity in MRVL; MRVL up 3.25%
Marvell Technology (MRVL, news, chart) is seeing a flurry of trading activity Thursday morning. Shares are up 46 cents to $15.34 and 53,000 MRVL calls have traded, compared to 6,500 puts. The activity today seems to be in reaction to talk of possible takeover interest from Texas Instruments (TXN).
Legendary Bill Miller fired by MA pension fund for lousy performance.
MA Pension Fund manages a whopping $ 30B.
- live
Amzn did not help. Forget about HB and XLF.
Bill Miller is history. Another SuperStar Fund Manager, a victim of world wide credit crisis, that he did not see it coming.
A close above 22.72 on XLK ( Tech SPY) would be bullish for nasdung and therefore for the market.
XLK currently trading at 22.72.
Seismic Sentiment Shift indicates investors more bullish
Investor sentiment turned a lot more bullish yesterday. The S&P 500 Index (.SPX) added 36 points and CBOE Volatility Index (.VIX), which tracks expected volatility priced into SPX options, fell 2.35 to 21.14. Meanwhile, call volume across the US exchanges jumped to 9.7 million contracts, compared to 6.2 million puts. The total put-to-call ratio subsequently fell to .64 (6.2/9.7 = 6.4) and its lowest levels since May 15 and its third lowest levels of the year. The chart shows the recent slide in the 10-day average. Like VIX, it has been falling, which suggests that the extreme bearishness and pessimism seen just a few weeks ago is clearly subsiding. That, in turn, can pave the way for a less volatile enivornment and possibly higher stock prices.
- Put Call Option and VIX Activity, (no chart)
datet August 06 2008
50% of investment newsletter bearish on the market.
that's the highest since 1995, yes since 1995.
- Bob Pisani on cnbc live
Yes, morally right (absolutely). But history seems to be on the Pigmen side.
SEC extends short selling curb through August 12
10:43 p.m. 07/29/2008 Provided by Reuters
By Kim Dixon
WASHINGTON (Reuters) - U.S. securities regulators have extended through August 12 an emergency rule aimed at curbing abusive short selling in the stocks of 19 major financial firms, including mortgage giants Freddie Mac (FRE) and Fannie Mae (FNM) .
The Securities and Exchange Commission rule is part of an agency crackdown on possible market manipulation that some blame for steep declines in the shares of financial companies.
The emergency measure, that first took effect July 21 and will not be further extended, requires investors to borrow a stock before selling it short and to deliver the stock on the settlement date.
The SEC said it would use the additional time to collect more data on the rule's impact and then start a rule-making aimed at providing additional protections against abusive naked short selling in the broader market.
"The order is designed to protect legitimate short selling in these securities, but helps prevent illegitimate naked short selling and potential 'distort and short' manipulation," SEC Chairman Christopher Cox said in a statement.
Cox told a congressional hearing last week that the agency would soon propose a rule extending the emergency short sale requirements to the entire market.
Short sellers arrange to borrow shares they consider overvalued and sell them in hopes of making profit when the price drops.
When an investor does not pre-borrow the shares before shorting the stock, it's called naked short selling, which is illegal if done intentionally.
The temporary rule applies to Lehman Brothers (LEH), Goldman Sachs (GS), Merrill Lynch (MER), Morgan Stanley (MS), JPMorgan Chase & Co (JPM) and Citigroup Inc (C), among others.
Henry Klehm, a securities lawyer at Jones Day representing financial companies, said it he believed it was important the SEC continue to enforce the rules against naked short selling.
"This orders seems to have dampened the volatility in many of the financial stocks," said Klehm.
The American Bankers Association has been lobbying the SEC to include all publicly traded banks and bank holding companies, such as Washington Mutual Inc (WM) and Wachovia Corp (WB), whose stocks have been under selling pressure.
Short sellers, meanwhile, have protested that they are being unfairly scapegoated, although the SEC has said it is not looking to outlaw short selling, a type of investing that can keep stocks from becoming overvalued.
The Securities Industry and Financial Markets Association says a broad expansion of the rule would be burdensome.
"Expanding the requirement to pre-borrow for every one of the thousands and thousands of publicly traded companies would involve serious operational challenges, not to mention a likely impact on liquidity and market performance, all of which we are still quantifying," said Ira Hammerman, SIFMA's general counsel, in an e-mailed statement.
The SEC's emergency rule has exempted market makers from the pre-borrow requirement so they can continue to facilitate trading in certain stocks. But market makers are still required to deliver securities by the settlement date.
(Reporting by Kim Dixon; Editing by Tim Dobbyn)
Copyright © Reuters 2005.
SEC Intensifies Efforts To Rein In Short Selling
Wall Street Readies
For Longer Limits;
Are Curbs Working?
By JENNY STRASBURG, KARA SCANNELL and RANDALL SMITH
July 28, 2008; Page C1
Wall Street executives expect the Securities and Exchange Commission to extend the temporary limits it has placed on short-selling and expand them to cover additional stocks beyond the 19 financial companies it targeted two weeks ago.
The limits are set to expire Tuesday, and executives, lobbyists and hedge-fund representatives of the Managed Funds Association, the biggest hedge-fund industry group, have been talking throughout the weekend, trying to come up with possible approaches to asking the SEC to reconsider expanding the rules, according to people familiar with the talks.
A call with regulators on Friday gave the funds group "a fair degree of certainty" that the SEC intends to seek an extension of the emergency period, these people said. Regulators said an extension could be for as short as 60 days and could involve insurance, housing-industry and a broader range of financial stocks, according to these people. SEC Chairman Christopher Cox indicated last week the rules might be extended to all stocks.
In a short sale, a trader sells borrowed stock in a bet the price will decline and the stock can be profitably repurchased at a lower price. The new rules require specific arrangements to borrow shares in short sales rather than the existing rules, which allow a looser assurance the shares can be located.
The rules appear to have had their intended effect of halting the slide in shares of financial companies such as Fannie Mae, Freddie Mac and Lehman Brothers Holdings Inc. Combined with falling oil prices and encouraging earnings reports from some banks, shares in some of these names have doubled.
Some hedge-fund officials until Friday said privately they considered an extension of the short-selling curbs unlikely. However, calls with regulators on Friday afternoon left a different impression, giving the matter added urgency going into the weekend, they added.
By 11:59 p.m. EDT Tuesday, the SEC will need to decide whether to extend its emergency order or let it expire. The SEC said it could extend the order for 30 days. But the law allowing the order limits such action to 10 business days.
It's not clear the SEC commissioners will agree that an extension is warranted. Paul Atkins, a Republican commissioner, has asked the agency's economists to determine whether the order had an effect on the targeted stocks, a person familiar with the matter says. If it hasn't, Mr. Atkins might argue against an extension, this person said.
Two groups of investors appear to be most vulnerable to an extension and broadening of the rules, smaller firms where the added costs and capital requirements would be onerous and fast-trading funds that use computer programs to make thousands of trades a day.
So far, major Wall Street firms have been complying with the order manually, making phone calls to line up so-called pre-borrow arrangements for the 19 stocks. Expanding the rule to all stocks "would require an extensive delay" so the process could be automated, one brokerage executive said.
Executives at the big Wall Street firms that handle trading for hedge funds and others have also been involved in discussions about how to adapt their computer systems to handle the rules.
The expansion could require increased capital to finance the borrowed shares during the three days before trades settle, as well as make short selling more cumbersome and labor-intensive. It is expected that the industry will push back forcefully on any attempt to expand rules.
The SEC is also working to make short-selling rules permanent. The SEC staff is expected to narrow down the options and recommend them to the four SEC commissioners, which could happen as soon as Monday. The rules wouldn't be finalized until later this year.
Write to Randall Smith at randall.smith@wsj.com1
US SEC looks to expand short rule to entire market
Thursday July 24 2008 (Adds comment from Rep. Bachus, paragraph 12)
By Karey Wutkowski and Rachelle Younglai
WASHINGTON, July 24 (Reuters) - The top U.S. securities regulator remains steadfast in a plan to broaden an emergency rule to curb abusive short selling despite opposition from the hedge fund industry and other short sellers.
U.S. Securities and Exchange Commission Chairman Christopher Cox told lawmakers on Thursday the agency would soon propose expanding the rule covering the shares of 19 major financial firms to the entire market.
"We have immediately pivoted to a broader rule making ... so we can extend this kind of procedural protection to the entire market," SEC Chairman Christopher Cox told a House Financial Services Committee hearing.
"I think very soon we will be in a position to issue a proposal on that," he said. The SEC could consider its next steps at the end of July or beginning of August.
The SEC is also considering other remedies to short selling abuses, such as requiring the reporting of substantial short positions, Cox told reporters after the hearing.
Britain's financial watchdog, the Financial Services Authority, has also unveiled plans to deal with short sellers and introduced rules in June that would force investors to reveal significant short positions in companies selling new shares.
Cox said the public disclosure of significant short interests could be similar to, but not the same as, the SEC's current disclosure requirements for long positions.
"The concern on the short side is related in part to our ability to conduct enforcement," he said.
Cox said it would be "premature to provide specific contours of what reporting would look like" for short positions.
The temporary rule requires investors to borrow stock before executing a short sale in 17 major Wall Street firms such as Citigroup and Lehman Brothers as well as mortgage finance giants Freddie Mac and Fannie Mae.
The emergency rule, which started on Monday, can only last a total of 30 days but the American Bankers Association and former SEC officials have been urging the investor protection agency to extend and expand the rule.
Alabama Rep. Spencer Bachus, the top Republican on the House Financial Services panel, has sent a letter to Cox urging him to expand the order to include financial firms with a market capitalization of at least $750 million or those that have at least a 5 percent short interest.
Groups representing short sellers have urged the SEC not to extend the emergency order past July 29, nor beyond the current list of companies.
The SEC has said it is not looking to outlaw short selling, a legitimate form of investing that can keep stocks from becoming overvalued.
Short sellers arrange to borrow shares and sell them in hopes of making a profit when the price drops. When an investor does not pre-borrow the shares before shorting the stock, it's called naked short selling, which is illegal if done intentionally.
The SEC's emergency rule has exempted market makers from the pre-borrow requirement so they can continue to facilitate trading in certain stocks. But market makers are still required to deliver securities by the settlement date.
At the hearing, lawmakers asked Cox why the agency did not reinstate the so-called tick-test rule on short sales, which was implemented after the 1929 stock market crash. Cox reiterated that studies have shown that the tick test is no longer effective.
In June 2007, the SEC repealed the rule, which only allowed short sales when the last sale price was higher than the previous price.
Cox said the idea of using a price test or some sort of circuit breaker to regulate manipulative short selling is a "subject currently under consideration by the commission staff."
(Editing by Tim Dobbyn)
http://www.guardian.co.uk/business/feedarticle/7676297
Yeah, but the MMs as well as option MMs must deliver shares at settlement date, which was not the case before.
And Cox may soon expand this rule to entire market now applicable only to 19 pillars (stocks) in XLF.
Forget about retails and hedgies. now MMs must do the painful baby delivery on due (settlement) date, especially when it comes to those 19 pillars in XLF. SEC says no more FTDs acceptable from MMs on settlement date.
Wachovia names senior Treasury Department official Steel CEO, sees loss
8:49 p.m. 07/09/2008 Provided by Reuters
By Jonathan Stempel and Dan Wilchins
NEW YORK (Reuters) - Wachovia Corp (WB), the fourth-largest U.S. bank, named senior Treasury Department official Robert Steel chief executive, and said mortgage and legal problems would result in a $2.6 billion to $2.8 billion second-quarter loss, much larger than many analysts expected.
Steel, 56, has been under secretary for domestic finance since October 2006, playing a critical role in helping Treasury Secretary Henry Paulson manage the U.S. housing crisis and mounting losses for the banking industry.
The crisis has hit Wachovia hard. A $24.2 billion purchase in 2006 of California mortgage specialist Golden West Financial Corp saddled it with $121 billion of poorly performing home loans -- the main reason for the projected quarterly loss.
Steel's blend of government and private-sector experience might be a boon for Wachovia, analysts said. Before joining the Treasury Department, Steel had worked at Goldman Sachs Group Inc (GS), where Paulson was chief executive. Steel retired as Goldman vice chairman in February 2004.
"The Wachovia board really reached for a star and they caught one," said Eugene Ludwig, a Comptroller of the Currency under President Bill Clinton and now managing partner at consulting firm Promontory Financial Group in Washington, D.C. "Financial companies are likely to be even more regulated than they have been, so his understanding will help."
Wachovia said the quarterly loss will equal $1.23 to $1.33 a share, excluding an expected write-down of goodwill that will not affect capital levels. Analysts, on average, had expected a profit of 19 cents per share, according to Reuters Estimates.
Steel's hiring fills a five-week void atop Wachovia since the June 2 ouster of Ken Thompson. Other big financial players to replace CEOs because of mortgage problems include Citigroup Inc (C), Merrill Lynch & Co (MER) and UBS AG .
"Clearly, there are challenges ahead in our current climate, but I am encouraged that most areas of the company continue to perform well," Steel said in a statement.
The hiring may dampen speculation that the Charlotte, North Carolina-based bank might be sold soon.
Lanty Smith, who will remain chairman and led the search for Thompson's replacement as interim chief executive, affirmed his commitment to Wachovia's independence on Wednesday. He said in a statement Steel would manage Wachovia well "through the current environment as a strong and independent company."
Steel and Smith were unavailable for immediate comment, a Wachovia spokeswoman said.
"At least now the market knows how big the losses are going to be and having a number is better than having no number," said James Ellman, president of hedge fund Seacliff Capital in San Francisco. "But it may also be a negative for the stock. If you put a new CEO in place, it means the board will usually want to let the guy have a chance."
Wachovia shares rose 41 cents to $14.70 in after-hours trading. The shares had fallen $1.25, or 8 percent, to $14.29 in regular trading, leaving them down 63 percent for the year.
MORTGAGE LOSSES DRAG
Steel worked closely and easily with lawmakers on legislation to strengthen the agency that regulates mortgage companies Fannie Mae (FNM) and Freddie Mac (FRE) .
He was also involved in the spring bailout of investment bank Bear Stearns Cos by JPMorgan Chase & Co (JPM), and a leading figure in arranging a complex though ultimately unnecessary plan last year among large banks to back so-called structured investment vehicles.
Unlike the sometimes blunt Paulson, Steel has a polished and genial manner that could jibe well with Wachovia's traditional corporate culture.
In a statement, Paulson said Steel served President George W. Bush and the public "with ingenuity and dedication during extraordinary times in our financial markets."
Anthony Ryan, assistant secretary for financial markets, will take a broader role in managing the Treasury's domestic finance operations, the department said.
While Steel's job at Treasury should have left him privy to intimate financial details about many Wachovia rivals, one ethics expert said only post-employment restrictions for former senior civil servants would limit him at Wachovia.
"There won't be any conflict of interest," said Jan Witold Baran, a partner at Wiley Rein LLP in Washington, D.C.
Ben Jenkins, who had been interim chief operating officer, remains Wachovia's president of retail and business banking.
Wachovia said second-quarter results would include a $4.2 billion pre-tax increase to loan loss reserves, including $3.3 billion related to "Pick-a-Pay" option adjustable-rate mortgages in which Golden West specialized. Last week, Wachovia said it discontinued that product.
The bank said charge-offs totaled about $1.3 billion in the quarter, including $500 million for the Pick-a-Pay portfolio and $280 million for commercial real estate. It expects to report a Tier-1 capital ratio, measuring its ability to cover losses, of about 8 percent, well above the regulatory minimum.
In buying Golden West, Wachovia booked about $14 billion of goodwill. Because Wachovia has abandoned the option ARM, the main reason it bought Golden West, that business might be worth much less, necessitating a possible big write-off.
"Steel has his work cut out for him," said Marshall Front, chairman of Front Barnett Associates LLC in Chicago.
(Additional reporting by Patrick Rucker, Glenn Somerville and Phil Wahba; Editing by Andre Grenon and Braden Reddall)
Copyright © Reuters 2005.
Blog - RIMM "thunder" phone to be delayed; RIMM denies it.
---
There was a report from a research firm posted on blog that RIMM next gen thunder cell phone would be delayed for another 3-4 months.
But Jim Goldman spoke with RIMM and the company spokewoman denies it.
- Cnbc Live
Crude Oil just turned red.
Merill upgrades WB to BUY
- Bob Pisani on Cnbc Live
Futs turn almost green in spite of $ 2 rise in crude oil in pre market activity.
Oil rebounds $2 on Iran missile tests
LONDON (Reuters) - Oil rose $2 to near $138 a barrel on Wednesday, partly recouping a $5 drop in the previous session, after Iran said it had test-fired missiles that could reach Israel and U.S. bases in the region. U.S. light crude for August delivery was $1.86 up at $137.90 a barrel by 1043 GMT, off highs of $138.28. London Brent crude was $2.07 up at $138.50.
- Reuters Live
Massive Squeeze in progress in XLF.
SKF down almost $ 7.
Analyst: Government will stand behind Fannie, Freddie
07:57 a.m. 07/08/2008 By Riley McDermid Provided by
NEW YORK (MarketWatch) - Mortgage lenders Fannie Mae (FNM) and Freddie Mac (FRE) may not have to raise additional capital because of a new accounting law, an analyst for Keefe Bruyette said in a research note Tuesday.
Crude Oil down almost mighty US dollar 5 while GOOG up almost mighty US dollar 5.
1361 holds. Rally Time.
I hope that you are loading up even more on BIDU here. Chuckles.
Capitulation has not yet happened; consensus forecasts for US and UK earnings in 2008 are still for double-digit growth. Cue flying pigs.
What a fabulous (financial) year 90% of the world’s population has just enjoyed. This majority is either employed in primary products - such as farmers, who have been making out like bandits - or are serious savers - where higher deposit rates from Beijing to Bogota have been a huge plus - or are involved in manufacturing, where employment globally has been robust. Truly, it has been the best of times for the bulk of the world’s population. 5%, of course, have had a miserable time; Darfur and Burma are but two examples. The key issue, however, concerns the final 5% - vociferous, wealthy and in denial. They are already in trouble and should expect more of the same.
This tiny minority are involved in the financial services industry, and are still failing to remember what they well know. First, lightning always strikes twice, be it watching Citigroup go cap-in-hand to the Middle East for the second time in 15 years, or Mizuho blowing away shareholders’ funds on loans to areas where it has no knowledge (or reason to be there) for the third time, or serial offender UBS scrabbling around to repair its capital base (after issuing some highly dubious ‘positive’ statements). This is indicative of how banks really work; many have a culture which can best be described as RCS (‘Repetitive Cock-up Syndrome). The only difference this time around is that the rescuers are that much smarter. Citi is effectively borrowing at a rate of 11%; last time they suckered their saviour with dilutive equity. UBS is effectively borrowing from Singapore at 9%. Thus in both cases they are borrowing at three times their local one year interbank rate. So how will they lend that on (as banks must, that being their business) at a profit, without taking even greater risks? We still maintain a zero banks weighting because they remain un-analysable.
“Under-owned” and unloved sectors are so exciting we’re almost dribbling. On every recent market fall, fixed line telephone companies, widely held across each fund, have ticked higher; hardly surprising, with yields 30% more than 10-year government bond rates. Three quarters of all broker recommendations on pharmaceutical stocks remain ‘hold’ or ‘sell’. What more do you need to know about a sector which has just completed a five-year bear market? The significant weightings in agricultural-related shares are still being run, but with some nervousness given their growing popularity. Their key driver remains, however - the outlook for grain prices is that they remain ‘high’ (although 90% less in real terms than 40 years ago) - so we’ll stay on for the ride. Media and Entertainment is also still unpopular, yet the earnings cycle is bottoming. Lots to buy.
The near-panic in central banks and treasuries is simply excellent for gold, as is their turning on the printing presses. Go with the trend.
There is no ‘sub-prime’ crisis, and never has been. What there has been is a total meltdown in lending controls by all banks, primarily with respect of property. The implosions in many national residential markets are so well covered in the press they need no repetition here, save that they have only just begun. A singular example is offered by Greater London; house prices at end June were 11x average income. If they fall to 7.5x average income, this hugely optimistic low will be higher than the two previous peaks of 1972 and 1988, and over twice the previous lows. Redeem those property funds while you can (and instruct a good lawyer now, before the rush). But banks also have giant commercial property loan books; here discipline has been worse. Note that UK commercial property prices have suffered their largest quarterly fall in over a decade, yet still yield 40% less than three-month money. It’s the same overseas; i.e. Manhattan is sick as a parrot, and in booming Shanghai commercial tower blocks have large numbers of floors with their lights off, despite being 100% occupied, according to the agents.
Lightning strikes twice in fund management too; many of those who brought you exciting split capital investment trusts at the start of the decade, are now slashing the value of their property funds and barring investors from redeeming. How many times do they need to be mugged before they come to know their enemy? (The only property shares held in the funds are in Germany and Japan).
In the 12 months to June, the value of leveraged buy-outs was 10x the previous peak year of the TMT boom. In the 12 months to October, the total value of share buy-backs by companies in the US (similarly to other countries) was 2.5 times the TMT peak, also the previous all-time-high. These have been key after-burners, propelling markets; now they have been switched off.
Yet capitulation has not yet happened; consensus forecasts for US and UK earnings in 2008 are still for double-digit growth. Cue flying pigs. Tea leaves favour that rare event, a year-on-year fall. Co-ordinated central bank intervention in the money markets is creating a belief that the credit crunch could be over quite soon. Be careful what you wish for; the rule is that the shorter the time duration of the crunch, the greater in percentage term the fall in asset prices.
The trigger was pulled on options, with all UK and European positions being covered through a 5% put spread, fortuitously taken out just as markets bounced to within a whisker of their all-time-highs. The target is simply to add 0.5% to 1% to the NAV over the next few weeks as markets roll over.
- Bedlam Asset Management - Investment Bulletin 14.12.07
- Live update from my reliable sources
Dougy Kass : Permabulls Remain in Denial big time
By Doug Kass
RealMoney Silver Contributor
12/14/2007 11:42 AM EST
URL: [url http://www.thestreet.com/newsanalysis/investing/10394559.html]
Last night, I appeared on CNBC's "Kudlow & Company." Here is the video of my appearance.
As I mentioned recently, talking with Larry about the stock market can sometimes be tough, because he is a permabull, a sincere believer in Goldilocks and a true believer that the U.S. economy/stock market is the "greatest story never told."
By contrast, I, as I have stated on numerous occasions, I believe that the U.S. economy is "the greatest story ever sold."
On the panel last night was Dynamic Mutual Funds' Noah "Boychick" Blackstein and Trend Macrolytics' Don Luskin.
Both Don Luskin and Larry Kudlow, two proponents of free-market capitalism, criticized the Fed for being too meek in cutting rates and for the manner in which it communicated the liquidity injection on Wednesday morning.
It is truly ironic to me that Don and Larry, two of the greatest devotees to the strength of the domestic economy, are among the most vociferous critics of the Fed. If all is well in the U.S. economy, why do they continue to suggest that monetary policy should be loosened dramatically, and that the Fed is not doing enough?
By contrast, I suggested that the issue was much broader. From my perch, market participants have lost faith in both the Fed's recent actions and the Treasury Department's mortgage proposal as solutions to the deeply rooted credit problems, and this widespread vote of no confidence is producing inflation and currency fears.
These moves are no longer seen as a panacea. After all, as I remarked, Libor remains elevated, equities are weakening, and the TED spread is historically high. So there is, I insisted, a growing recognition that the credit crisis has deepened.
As I wrote yesterday:
The current credit crisis emanated from the unprecedented growth in debt over the last two decades, which was accompanied by the cessation of lending/borrowing judgment.
Historically low interest rates (brought to us by the prior Fed chairman) encouraged the quest for yield, and normal due diligence was abandoned.
The outgrowth is a world awash in an unwieldy and unregulated derivative market that managed to bypass traditional banking regulation.
It is a setting which patchwork mortgage proposals and/or creative Fed initiatives will not likely remedy in short order.
Most importantly, it seems that the markets are beginning to accept the notion that the financial workout will take time and, in all likelihood, can only be relieved by the natural forces of an extended recession.
I went on to say that corporate profit, business spending and personal consumption forecasts are going to be revised down by consequential amounts.
Larry Kudlow and Don Luskin attacked my assertion that the economy is at the door of recession.
In support of my argument, I tried to explain the causalities I saw leading to that recession: the housing depression, the subprime contagion moving up the ladder of credit, and the delta of economic growth is clearly slowing, with third-quarter 2007 5% GDP growth morphing into 1.5% growth in fourth quarter 2007 and, as judged by Morgan Stanley (MS) , slightly negative readings in the first two quarters of next year. The other panelists considered Morgan Stanley a permabear on the economy -- a new one to me!
Unfortunately, I was repeatedly interrupted before I could list the growing evidence of a probable recession. Some of these items include consumer confidence plummeting, seized-up credit markets, weakening retail sales -- the November strength was bogus-adjusted for food and energy inflation -- and poor durable-goods reports.
Moreover, other leading indicators -- such as the Baltic Dry Index dropping by 10% from its high, housing permits and rising job claims -- all point to a rapidly eroding economy.
The panelists seemed keen on partial and conformational economic analysis and also chose to ignore the negative impact of Thursday's release of the PPI, which recorded its largest gain in nearly 35 years. (My "blahflation" scenario seems to be playing out.) As well, they chose to ignore the forward-looking equity market and its current weakness, although Larry routinely cites market strength as support to his uplifting economic forecasts.
In the final analysis, what Don and Larry don't appreciate (perhaps because they don't manage money) is that by the time it is clear that the economy has weakened toward recession, stocks will be much lower. It will be too late.
Now buy all you can for year 2008 mega rally.
GS Abbey Joseph Cohen has a year end target of 1650 on SnP cash for 2008. Oh Yeah !
Abbey, What happened to the year end target of 1600 on SnP cash for 2007. You got that one so wrong. LOL.
After all how can Jermey Grantham who manages a quarter trillion in US dollars could have called it so wrong ? Oh Yeah ! Got it.
13 reasons moron Bush's bailout won't stop recession
Like the tide, recessions are natural, healthy, positive ... and inevitable
By Paul B. Farrell, MarketWatch
Last update: 7:40 p.m. EST Dec. 11, 2007
ARROYO GRANDE, Calif. (MarketWatch) -- "What do you call an economist with a prediction? Wrong."
That was the headline of a Business Week column in late 1999, just months before the 2000 dot-com crash.
Yes, wrong: Conservative supply-siders, balanced-budget centrists and liberal Keynesian stimulators, too. All wrong! And the 2000 to 2002 recession proved it.
Unfortunately, everybody thinks they're an economist today, even politicians. But they're bad at it, too. So we need to update the headline to fit the mortgage bailout and other quick-fix solutions to America's problems.
First, the context: Fortune magazine recently put CEOs such as Citi's Prince and Merrill's O'Neill under the microscope: "What Were They Smoking?" The best-and-brightest lost $165 billion, but exited rich, with hundreds of millions.
Now we need to ask guys like Paulson, Bernanke and their Beltway buddies: "What are you guys still smoking?" Bailout? Freeze? Voluntary? They must be smoking hundred dollar bills from lobbyists because this government intervention scheme smells bad.
Why? Because all these solutions are being dreamed up by the same political and financial geniuses who got us into the problems in the first place. The same guys who failed to act before the economy spun out of control. Trusting those same guys makes absolutely no sense! They were clueless going in. They're clueless about the solutions. So, a new rule: "What do you call a politician with a prediction? Wrong!"
Though you may disagree with Dick Cheney, this time he's the only guy inside the Beltway who's got it right. Fortune says "the staunchly free-market Vice President can be expected to resist any impulse to soften the blow with government action." His position: "The markets work, and they are working."
But unfortunately, Bush, Paulson, Bernanke and the Democrats are out-voting Cheney. They're all pushing government programs predicted to slow the record number of home foreclosures and "ease the damage from the housing recession," as USAToday described the short-term goals.
What are they still smoking? Reminds me of Viking King Canute sitting on his throne at the shore commanding the tide to stop. Folks, tides and recessions come and go. And wishful-thinking, fairy-tale solutions won't stop the inevitable, any more than proclaiming this plan will "ease the damage of the recession," but it's "not a bailout, nor a silver bullet."
So let's step back and look at the facts objectively and rationally. Let's look at the 13 reasons why all the bailout fixes are just cosmetic PR that politicians and lobbyists spin for the masses, to gloss over Wall Street's greed and stupidity during the latest bull run-up, while pandering to voter naiveté, undermining America's long-term needs, and proving once again that our leaders cannot manage our nation effectively.
Here are 13 reasons:
1. No bailout for sock puppets ... and not for junk mortgages
Remember all the shareholders who invested in Wall Street's last fiasco, those bizarre, no-earnings, dot-com schemes like Pets.com and its cute sock puppet? Nobody bailed them out after the 2000 crash that triggered a 30-month recession and wiped out $8 trillion in market-cap. This time Washington's just trying to salvage an out-of-control Wall Street.
2. U.S. dollar loses more credibility
Can it get worse? Yes, the dollar will sink lower. Martin Feldman, former chairman of Reagan's Council of Economic Advisers, recommends doing nothing in a Wall Street Journal OpEd piece: "Arbitrarily changing the terms of mortgages held by investors around the world would destroy the credibility of American private debt." But they're doing it anyway. They got greedy, sold junk. Now people don't trust us anymore.
3. Supply-side hypocrisy
It's almost funny. Supply-siders pretend to trust the free market to work out problems. Yet the elite of the conservative free-market supply-siders on Wall Street, at the Federal Reserve and (except for the Veep) in the White House, pushed for and got government intervention to minimize mortgage credit losses created by Wall Street's excessive greed.
4. PR stunt and photo-op
Washington knows this is just a PR photo-op pandering to Middle America's fears. But "it's too little, too late and too voluntary" says a New York Times editorial. "Only an estimated 250,000 borrowers, at best, will benefit" from the mortgage-rate freeze. "From mid-2007 to now, some 800,000 have entered foreclosure. From 2008 through mid-2010 ... there will be an estimated 3.5 million loan defaults." Free market politicians know it won't work.
5. Undermines responsible mortgagees
Many worry the biggest losers may profit most, like speculators. Even junk mortgagees who are able to pay excessive reset rates may get no breaks. Moreover, the damage will spill-over to the tens of millions of responsible homeowners who are current on their mortgages. Plus, they will be indirectly penalized; for example, if they have to sell, they'll compete against mortgagees getting bailout benefits and tax breaks in a down market.
6. Taxpayer revolution coming
Wall Street got too greedy, made mega-billions. The average managing director made $2.52 million repackaging mortgages. Bubble pops. Housing collapses. Defaults. Foreclosures. Local revenues dropping. Federal, too. A Wall Street Journal editorial put it bluntly: "More than 95% of homeowners are making payments on time, and they believe it is unfair to pay more taxes to assist those who've been less responsible." Still, it's happening and they're angry. Expect a rebellion. This is Wall Street's problem, not the taxpayers.
7. Déjà vu Spitzer and Enron
New York Attorney General Andrew Cuomo has already subpoenaed Wall Street. Next: Congress, the SEC and other state regulators will demand answers, such as why was Goldman shorting the SIVs they were selling, many of which quickly went into default? What did they fail to disclose? Sounds like a massive conflict of interest with major liabilities. These hearings could drag on a long time, further undermining the international credibility of the dollar.
8. Washington was hiding the truth
As recently as August, U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke both proclaimed that our subprime/credit problems were "contained." Then, suddenly, they were a "contagion" enflaming recession fears. The truth: Both had the data long before August, and mislead us. One is a former chief of a leading Wall Street bank packaging the SIVs. The other is our Fed boss with a staff of thousands of economists and data-crunchers. They knew the truth many months ago, and did nothing.
9. Washington's priority? Wall Street
Remember, Paulson's first response in August was not to help the two million subprime mortgage holders. No, Paulson's first response was to create a $100 billion bailout fund to help his old Wall Street cronies keep all those junk mortgage credits off their balance sheets. More conflicts? You bet. Enough to make Chris Dodd, chairman of the Senate Banking Committee, threaten a formal investigation of Paulson.
10. American economy unmanageable
Maybe America's $13 trillion economy is just too darn big and complex to understand, let alone manage. Remember Bush Sr.'s chairman of the Council of Economic Advisers, Michael Boskin? He miscalculated U.S. tax revenues by $12 trillion a few years ago. Remember the low-ball estimates of drug entitlements? Or the estimates on Iraq war costs? We're in denial, unable to see or admit to -- let alone deal with -- big issues such as Social Security, until too late. Worse, our political quick-fixes handicap future generations.
11. Law of unintended consequences
Remember how everyone thought biofuels would make America oil-independent? Instead, feed prices shot up, and then the price of meat, as distribution costs soared. Today, we know it was all payback to corporate agribusiness for campaign contributions. Same here: Wall Street's a huge campaign donor. Too many unknowns can trigger blowback.
12. Prolonging recession pain
Washington's trapped in short-term solutions again, ignoring the future. Rate freezes will drag out the recession, ultimately making it worse. Property values will drop further, new home construction will be delayed, equity-to-mortgage ratios will fall, but the income of junk mortgage owners won't improve in a recession.
13. America needs a good recession
Deep down, Washington and Wall Street know you can't stop the coming downturn. Recessions are natural, inevitable, essential; a positive way of cleaning out the excesses of a prior bull market. So stop whining. It will flush itself! Stop fighting, go with the flow. When I was at Morgan Stanley, the Dow was around 1000. We lived through the brutal 1970s recession. We've grown stronger through a few recessions since. We're now above 13,000. We'll live through the 2008-2009 recession.
And we'll come out even stronger.
I would pay over time if I cannot control my urge for some (left blank). After all it's God's greatest gift to mankind.
What happened ? I thought the bull market is intact. Oh Yeah !
This is just noise. For now ignore GS. Look at their hedge fund performance. Come on, now - They GS can't get it right all the time even with FED and US Admin help. No one is immune to reading the stock market incorrectly, including GS. Got it.
theflyonthewall.com: Technology: Reducing estimates & targets across universe@GSCO
Goldman has lowered estimates and targets across technology given the difficult macroeconomic backdrop. :theflyonthewall
NY Times Front Page: Credit flowing to companies is drying up at a pace not seen in decades, threatening the creation of jobs and the expansion of businesses, while intensifying worries that the economy may be headed for recession.
http://www.nytimes.com/2007/11/29/business/29lend.html?_r=1&th&emc=th&oref=slogin
Anal ysts: Consumer spending still strong via plastic cards. Why not ? After all it is holiday shopping season.
Anal ysts: Why are you just too narrowly focused on Sears ERs alone ? Don't you know WalMart is taking away market share from each and every damn retailer in the retailing industry ?
Oh Yeah ! My ass.
Ma Sears ERs announced. Indeed lousy. Even CEO admits that it has been a terrible miss and a big disappointment to our beloved investors.
- DJ Newswire Live