Sunday, July 31, 2011

U.S. Debt Deal: Stocks Jump, Gold And Yen Fall As Investors Cut Safety Trades

Those fine folks at Reuters write that equities rose while gold and the yen dropped on Monday, with investors cutting safety trades after Washington reached a last minute deal to escape default, though the top U.S. credit rating could still be downgraded.

After a tense weekend in which rival plans to lift the U.S. borrowing limit were shot down in Congress, U.S. President Barack Obama said leaders from both parties reached a deal to cut the budget deficit by $1 trillion over 10 years, with additional saving possible.

U.S. S&P 500 stock futures bounced 1.4 percent and futures on U.S. Treasuries -- which have maintained their haven status despite being at the eye of the debt ceiling impasse – slid…

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OUCH! U.S. Could Still Lose Credit Rating

The tentative U.S. deal to avoid a crushing debt default is at best a mild relief for the U.S. economy that nearly stalled in the first half of the year and has yet to show signs of any realistic pickup, Reuters reports.

The plan for $2.4 trillion in spending cuts over a decade, if backed by lawmakers, would help lift some of the uncertainty that has weighed on investors, businesses and consumers unsettled by talk about a possible new and deep U.S. financial meltdown. Still, it does not decisively remove the threat that the nation's AAA credit rating could be downgraded, an action that would raise borrowing costs across the board, and the prospect of further cuts ahead will cut short any celebrating.

"This will have minimal impact on the economy. The cuts are not there for the first couple of years, which really makes you wonder if they're really going to happen at all," said Peter Morici, an economics professor at the University of Maryland. The prospect of spending cuts is the last thing the tottering U.S. economy needs right now, many commentators say.

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Goldman’s Lost Gleam

The Washington Post writes: "The window shades were lowered to block out the sunlight soaking Lower Manhattan on a Friday afternoon in June as 14 students in Eric H. Kessler’s executive MBA class gathered in a conference room to present their analyses of Goldman Sachs Group’s leadership.

"The firm’s management shows “resistance to change” and is “doing business in a bubble,” one of the three student teams explained in a PowerPoint presentation. Another recommended creating an “ethics role” within Goldman Sachs’s securities division. Kessler, who teaches management at Pace University’s School of Business, asked: Could cohesive culture be a weakness as well as a strength?

"Such critiques have been rare in Goldman’s 142-year history. The company’s status as Wall Street’s most powerful and profitable securities firm — with a leadership that produced two U.S. Treasury secretaries — has lured top students from Ivy League schools. After financial markets collapsed in 2008, driving Goldman Sachs and rivals to accept taxpayer aid, the investment bank became the most vilified on Wall Street...."


The Debt Deal: The Facts, Just The Facts…

.According to the BusinessInsider, The agreement removes the cloud of uncertainty over our economy at this critical time, by ensuring that no one will be able to use the threat of the nation’s first default now, or in only a few months, for political gain;

Locks in a down payment on significant deficit reduction, with savings from both domestic and Pentagon spending, and is designed to protect crucial investments like aid for college students;

Establishes a bipartisan process to seek a balanced approach to larger deficit reduction through entitlement and tax reform;

Deploys an enforcement mechanism that gives all sides an incentive to reach bipartisan compromise on historic deficit reduction, while protecting Social Security, Medicare beneficiaries and low-income programs;

Stays true to the President’s commitment to shared sacrifice by preventing the middle class, seniors and those who are most vulnerable from shouldering the burden of deficit reduction.

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An Agreement Is Struck!!! (But it still has to pass thru Congress and the Deficit Is Not Solved

It's not over until the fat lady sings....

The debt ceiling will be raised, and the U.S. government will not default on its obligations. But, as the Wall St Journal reports, the deficit hasn't yet been conquered. The firmest piece of the deal to which congressional leaders of both parties and the Democratic president agreed Sunday is a 10-year cap on annually appropriated spending for domestic and defense programs.

But the rest of the deal allows Republicans to continue to say that the deficit can be licked without raising revenue and allows Democrats to say the deficit can be licked without touching Medicare, Medicaid and Social Security beneficiaries—even though the arithmetic of deficits makes ...


Reid hopes for vote on deal Sunday night

With the default deadline just two days away, prospects for a debt-limit deal seemed to significantly brighten early Sunday after the White House entered intense negotiations with Senate Minority Leader Mitch McConnell on Saturday in a last-ditch bid to forge a bipartisan agreement to raise the federal debt limit.

According to the Washington Post ,late Sunday afternoon, Senate Majority Leader Harry M. Reid (D-Nev.) had given his approval to the emerging debt deal, but must still present the plan to his caucus possibly later Sunday evening. “Senator Reid has signed off on the debt-ceiling agreement pending caucus approval,” his office said.
After emerging from a lengthy closed-door meeting with House Minority Leader Nancy Pelosi (D-Calif.) and other Democratic leaders late Sunday afternoon, Reid (D-Nev.) was asked whether he expects a vote on the deal tonight.

“I hope so,” he told reporters...

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Weird, Weird Factoid: Apple has More Cash than the U.S. Government

According to a sonering report on Business Insider "the world's largest tech company has more cash than the world's largest sovereign government." Business Insider cites Apple's recently declared financial results for the third quarter that showed the company had $76.2 billion (£46.8bn) in cash and marketable securities at the end of last month.

In comparison, the latest statement from the U.S. Treasury shows that the government had $73.8 billion (£45.3bn) at the end of the day yesterday….

Funds Increase Bullish Commodity Bets

Funds lifted bets on rising commodity prices to a six-week high after traders snapped up raw materials as alternative assets amid the escalating U.S. debt crisis, according to Bloomberg.

Speculators raised their net-long position in 18 commodities by 10,063 futures and options contracts to 1.27 million in the week ended July 26, government data compiled by Bloomberg show. That’s the highest since June 14. Silver holdings rose for a fourth straight week, and bullish sugar bets climbed to the highest since February 2010.

The Standard & Poor’s GSCI Spot Index climbed 2.6 percent in July, snapping two months of declines. The S&P 500 Index dropped more than 2 percent last month on concern that the U.S. economy will falter as lawmakers remained deadlocked on raising the debt ceiling before a default deadline.

“Investors in many disciplines have been investing commodities and precious metals of late in response to loose and accommodative monetary policy around the world as well as uncertainty surrounding debt and budgetary issues both in Europe and the United States,” Michael Cuggino, who helps manage about $14 billion at Permanent Portfolio Funds in San Francisco, said in a telephone interview.

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Details of 'super committee' crucial in debt deal

The devil will definitely be in the details for a linchpin component of a possible debt-reduction deal.

According to a USAToday report, a divided Congress and the Obama White House continued negotiating Sunday to come up with a plan that could include a "super committee" of 12 members of Congress - six Republicans and six Democrats - tasked with recommending at least $1.8 trillion more in future reductions in the U.S. debt. A vote on its recommendations could be put to Congress by around Thanksgiving, Senate Minority Leader Mitch McConnell, R-Ky., said Sunday.

As behind-the-scenes negotiations continued Sunday night, politically loaded questions about that super committee were already emerging - questions that could still leave in doubt the deal's passage before the nation's $14.3 trillion debt ceiling is reached on Tuesday.

Starting with who would serve on it. That's hugely important because, depending upon the committee's power and responsibilities, a single members of such a committee could hold huge sway over its final recommendation.

Some Republicans are already balking at the possibility of a GOP appointee agreeing to raising revenue....


For Investors, Cash Is King (D.C.'s Stalemate Spurs Flows Out of Markets and Into Bank Accounts)

Wall St Journal reports that investors, companies and small savers are stashing billions of dollars in plain-vanilla bank accounts, taking cash out of short-term markets, in an effort to shield themselves from any market convulsions caused by Washington's stalemate over the debt ceiling.

The movement of money, akin to that during the peak of the 2008 financial crisis, is one more sign that skittishness is on the rise as officials in Washington remain deeply divided about ways to reduce the deficit and lift the debt ceiling ahead of the Aug. 2 deadline.

Failure to reach an agreement by Tuesday could cause the U.S. to default …
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First Market Reaction: The Buck Is Up On Glimmer Of A Debt Deal

According to Clusterstock, the first thing to realize is that the debt ceiling deal has a long road to travel, but at least in the Senate it sounds as though there's an agreement that can pass.
Whether this can pass the House, where the agreement will anger Tea Partiers and progressives alike remains a major mystery.

Regardless, in early trading, the dollar is up 1% against the yen, against which the dollar has been getting killed.

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Ex-SAC Manager Gets 30 Months In Expert-Network Probe

Those good folks at Bloomberg report that former SAC Capital Advisors LP portfolio manager Donald Longueuil, better known as the "garbarge man" for hiding digital evidence in the garbage, was sentenced to 30 months in prison for his role in an insider trading scheme that the U.S. says includes fund managers, so-called expert networking consultants and technology company insiders.

“I made mistakes,” Longueuil told U.S. District Judge Jed Rakoff before he was sentenced in New York. “I crossed the line. I broke the law.”

Longueuil, 35, pleaded guilty April 28 to a four-year conspiracy to commit securities and wire fraud and to securities fraud in a case that also included former SAC portfolio manager Noah Freeman, Samir Barai, founder of Barai Capital Management, and Jason Pflaum, an analyst who worked for Barai.

Prosecutors said Longueuil, Barai and Freeman were friends who pooled their illegal tips about technology companies in order to get a trading edge, while Pflaum assisted Barai in the scheme. All four men have pleaded guilty to federal charges. Freeman and Pflaum are cooperating with the government in its investigation while Longueuil and Barai aren’t cooperating….

The Truth Behind China's Threats to Dump US Debt

According to NPR, as the U.S. teeters closer to the brink of debt default, the political stalemate is being watched closely by its biggest foreign creditor, China. At last count, Beijing owned almost $1.2 trillion of U.S. Treasury debt.
As Secretary of State Hillary Clinton met senior Chinese official Dai Bingguo in Shenzhen on Monday, the mood was friendly. But behind the scenes, anxiety in China is rising as the minutes tick closer toward that Aug. 2 deadline..

"I'm confident that Congress will do the right thing and secure a deal on the debt ceiling, and work with President Obama to take the steps necessary to improve our long-term fiscal outlook," Clinton said.

State Department officials now admit that China has been using diplomatic channels to express its concern. It has sent several official demarches urging Washington to abide by its financial commitments.
Publicly, Chinese officials are still holding out hope that a default won't happen, arguing that it would betray the U.S. national interest. Huang Weiping, an economist from Renmin University, echoes what many believe to be true.

"We believe maybe the last-minute deal will be reached," Huang says. In any case, there's little that China can do.

Debt ceiling: 10 Life Lessons beyond that Crisis

According to Barry Ritholz in today’s Washington Post, the debt ceiling is hanging heavy over our heads. But that’s not the only reason it looks dark down here. We’ve got some major and prolonged challenges: ongoing debt issues, structural unemployment, a housing overhang and continued economic frailty.How did we get here….If this were a college final exam, it would be in essay form. But because it’s summer, and most of you are out of school, consider this the answer key to that exam.

1 Rates: After the dot-com implosion and 2000 market crash, the Federal Reserve lowered rates to 2 percent for three years, including a 1 percent rate for more than a year. That monetary policy was unprecedented. It had an enormous impact on various asset classes, including dollars, real estate, bonds, oil and gold. Had rates been “normal,” it is doubtful we would have seen a 41 percent drop in the dollar from 2001 to 2008.

2 The rating agencies: Moody’s Investors Service, Standard & Poor’s and Fitch Ratings — all originally served bond investors, who paid for their research. But that model changed in the 1990s to one that was funded by the syndicators and underwriter of structured financial products such as mortgage-backed securities. Essentially, bankers “purchased” the rating they desired. As a result, the performance of the rating agencies decayed…..

3 The radical deregulation of derivatives: The Commodity Futures Modernization Act of 2000 was a highly unusual piece of deregulatory legislation. It created a new world of uniquely self-regulated financial instruments — the credit derivative. Unlike traditional financial instruments — bonds, stocks, futures, options, mutual funds — it did not require anything from underwriters or traders. No reserve requirements against future obligations, no counter-party disclosure, no exchange trading needed, no capital minimums. This had an enormous impact on risk management, leverage and mortgage underwriting…..

4 Subprime loans: More than 50 percent of subprime loans were made by nonbank mortgage underwriters not subject to comprehensive federal supervision; another 30 percent were made by thrifts also not subject to routine supervision. With this, traditional lending standards disappeared. Millions of unqualified borrowers poured into the residential housing market as overleveraged buyers.

The irony is that dropping credit standards is a key factor in just about every bubble and financial crisis in history. Call it a lesson never learned..


Lawmakers In "General Agreement" On $3 Trillion Debt Ceiling Deal…But Deal Isn't Done Yet

BusinessInsider writes: “welcome to the final Sunday before August 2, the day the US is scheduled to default for the first time if no debt ceiling deal is reached.
Last night a vote in the Senate was delayed to give The White House and Congressional leaders more time to hammer out a deal, which was said to be close.
This morning a "tentative" framework for a deal has been reached, and congressional leaders are discussing it with their members.

The basic idea: The debt ceiling is hiked in two stages the first with cuts agreed to now, and the second with cuts agreed to by a committee….

Don't touch that dial, sports fans...

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Wall Street Mobilizes in Washington

Holy crap! Wall Street is no longer watching from the sidelines as the most polarizing political fight in years plays out on Capitol Hill, The NY Times reports.

On Friday, Jamie Dimon, JPMorgan Chase’s CEO, raised concerns with Treasury Secretary Timothy F. Geithner about the standoff over the debt ceiling and its potential to disrupt the system through which JP Morgan and other big banks disburse federal payments. Mr. Geithner assured him that the Treasury and Federal Reserve had taken steps to keep the payment system functioning smoothly, according to individuals briefed on the call.

In addition, more than a dozen chief execs from the nation’s biggest financial services firms wrote a joint letter to President Obama and members of Congress on Thursday warning of “very grave” consequences for the economy and the job market if an agreement wasn’t reached. It’s not just chief executives who are now doing the talking, either….Bankers have deluged Congressional staff members with research reports outlining the bleak consequences of a default, or even a downgrade of United States government debt by the major rating agencies….


Lansdowne Dumps $850 Million Goldman Stake

According to the Sunday Telegraph Lansdowne Partners Ltd., a London- based hedge fund, sold its $850 million stake in Goldman Sachs Group Inc. (GS), the Sunday Telegraph reported, without saying where it got the information.
The decision was based partly on reduced proprietary trading at Goldman Sachs stemming from regulation in the U.S., the newspaper said.
Lansdowne was among the top 20 investors in Goldman Sachs, and the stake made up almost 10 percent of the hedge fund’s $10 billion under management, according to the Sunday Telegraph.

The last time Lansdowne sold shares of Goldman Sachs was before the collapse of Lehman Brothers Holdings Inc. in 2008, the paper said….

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Friday, July 29, 2011

...And about all that talk about Obama and 14th Amendment on debt ceiling

According to Reuters, the White House on Friday addressed increasing calls by some Democrats for President Barack Obama to raise the debt ceiling on his own by invoking the 14th Amendment of the Constitution.

"This administration does not believe that the 14th amendment gives the president the power to ignore the debt ceiling," White House spokesman Jay Carney said.

A clause dating from the Civil War era of the 1860s says the U.S. public debt "shall not be questioned." The White House has resisted taking such a step.


Delayed Social Security Payments Will Cause Disaster

As the Treasury Department prepares to hit the swiftly-approaching debt limit with no agreement to lift it in sight, fears are growing that the government might opt to skip the next round of Social Security payments, HuffPo reports..

Experts warn that the program is such a vital source of support for so many low-income and elderly Americans that even one delayed payment could trigger a domino effect, sending millions of households into delinquency on a broad range of bills.

"What we are talking about here," said Joan Entmacher, vice president for family economic security at the National Women's Law Center, "is not the financial markets -- not that they are not important -- but the very ability of millions of Americans to buy food, pay their utility bills, their rent or mortgage and to generally function."

If Social Security payments don't come, Entmacher said, "there are a whole series of very serious, deeply frightening consequences that could, and very likely would, follow…"

There are about 54.8 million Americans who receive some form of Social Security benefits each month, according to government data. Most payments are made to retirees, disabled individuals and certain dependent children and adults. For a substantial share of the people who receive Social Security benefits, that income is essential. About 40 percent of all unmarried individuals who receive social security benefits rely on the program for at least 90 percent of their income,…


Wall St., Prepared for the Worst, in Wait-and-See Mode

Wall Street execs and traders will spend the weekend holding their breath as the debt impasse continues to suck all the oxygen from the room. According to NY Times' Dealbook, contingency plans are in place, positions established and cash sidelined. Now it’s a matter of wait-and-see, along with collective annoyance that the confrontation has dragged on this long. While few think the United States will default on its debt obligations, if 2008 has taught investors anything, it’s to prepare for the worst.

Bank of America, at least, weeks ago commissioned a team to study the impact a default might have on customers and the broader economy. Now, with little else to do in the way of preparation, some officials are cancelling vacations and clinging to their BlackBerrys. Other banks have dispatched executives to Washington to meet with members of Congress and regulators. The Securities Industry and Financial Markets Association, an influential Wall Street trade group, organized a grassroots campaign where banks and other financial firms jotted off letters to lawmakers, urging them to take action. On Thursday, rating agency Standard & Poor’s held a conference call for more than 1,000 investors.

And in New York on Friday, some of the biggest dealers in Treasury debt — Goldman Sachs and JPMorgan, among others — spent Friday morning with officials at the Federal Reserve of New York, a somewhat unnerving echo of 2008 when bankers huddled there to discuss preventing a financial collapse. In contrast, Friday’s meeting is part of a regular event at the Fed, planned some time ago.

Investors are similarly sanguine about what’s to come, having already marked their escape hatches in the event of a default. Again, 2008 has proven a cautionary tale for hedge funds and others worried about unforeseen market calamity. Some hedge funds are going to cash, parking money on the sidelines in case things go haywire. At least one hedge fund is stockpiling cash in a series of F.D.I.C.-insured accounts…..

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Washington Pissed-Off at Wall Street's Failure to Panic

CNBC’s John Carney writes: I just got off the phone with a source on Capitol Hill who has spent the past few days trying to convince Republicans to vote for a debt ceiling hike. He told me that the biggest obstacle he faces has been "market complacency."

"Frankly, a bit of panic would be very helpful right now," he said.

As he explained it, lots of people in Washington, D.C., expected that this would be a week marked by panic in the markets. Stocks would tank. Bonds would get clobbered. The dollar would do something dramatic. And all of this would help convince reluctant lawmakers that they had to reach a compromise on the debt ceiling.

"We were following the script from 2008. When the market collapsed after TARP failed, that spooked everyone enough to get them to fall in line. We thought the same thing would happen this week," he said.

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Got to grab some food. Be back in an hour…

70 something hours to go: U.S. Contingency Plan Gives Bondholders Priority

Bloomberg reports that the U.S. Treasury will give priority to making interest payments to holders of government bonds when due if lawmakers fail to reach an agreement to raise the debt ceiling, according to an administration official.

The official requested anonymity because no announcement has been made. The Treasury has said about $90 billion in debt matures on Aug. 4 and more than $30 billion in interest comes due Aug. 15. Overall, more than $500 billion matures in August.
The $90 billion in six-month Treasury bills maturing Aug. 4 pared losses after the comments. Obama administration officials will brief the public no earlier than after financial markets close tomorrow on priorities for paying the nation’s bills if the $14.3 trillion limit isn’t raised, a Democratic Party official said earlier.

“The announcement is reassuring, but there’s really no alternative to favoring the bondholders,” said Christian Cooper, head of U.S. dollar derivatives trading in New York at Jefferies Group Inc., which as one of the 20 primary dealers is obligated to bid in Treasury sales. “The alternative would point to a default….”

Canadian Banks a Safe Haven in Event of Default

Although lawmakers will most likely reach a compromise regarding the $14.3 trillion U.S. debt ceiling, investors should contemplate a downgrade by at least one credit rating agency, and its possible effects on the economy and interest rates, CNBC said.

In the unlikely event of a default, there would be broad implications for the economy, currency and the bond and equity markets.

"There would be major disruptions in payments creating a liquidity event and a general 'freezing up' of the financial system and economy," the report stated. "The only relative safe haven in our North American equity coverage universe would be Canadian banks, and even they would likely be impacted from the spillover of a weakened U.S. economy."

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House to Vote on Debt Bill That Obama, Senate Oppose (Why ask why?)

President Barack Obama said Republicans and Democrats are in “rough agreement” on their plans to raise the U.S. debt limit with just four days before a threatened U.S. default and the time for compromise is “now,” Bloomberg writes.

House Majority Leader Eric Cantor said Republicans have the votes to pass House Speaker John Boehner’s plan later today. Obama opposes that plan. Senate Majority Leader Harry Reid said he will take action to move to a vote on his competing plan, and at the same time held out hope for a deal with Republican leaders.
“If we don’t come to an agreement, we could lose our country’s AAA credit rating, not because we didn’t have the capacity to pay our bills -- we do -- but because we didn’t have a AAA political system to match our AAA credit rating,” Obama said at the White House….


House to Vote on Debt Bill That Obama, Senate Oppose (Why ask why?)

President Obama said Republicans and Democrats are in “rough agreement” on their plans to raise the U.S. debt limit with just four days before a threatened U.S. default and the time for compromise is “now,” Bloomberg writes.

House Majority Leader Eric Cantor said Republicans have the votes to pass House Speaker John Boehner’s plan later today. Obama opposes that plan. Senate Majority Leader Harry Reid said he will take action to move to a vote on his competing plan, and at the same time held out hope for a deal with Republican leaders.

“If we don’t come to an agreement, we could lose our country’s AAA credit rating, not because we didn’t have the capacity to pay our bills -- we do -- but because we didn’t have a AAA political system to match our AAA credit rating,” Obama said at the White House….


U.S. Dollar Dives

The dollar fell broadly Friday on signs of a sharp slowdown in U.S. economic growth and the increasing possibility of a debt default that could hurt the economy further, according to HuffPo.

The government said that the U.S. economy grew at a tepid 1.3 percent annual rate from April through June, after growing a scant 0.4 percent in the first three months of the year. It's the weakest six months for the economy since the recession ended in June 2009.

"The Federal Reserve can't help but look at these numbers and wonder if it ending asset purchases last month was premature," wrote foreign-exchange brokerage GFT's currency analyst Kathy Lien. "The dollar is looking less and less attractive."

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Default Watch: Congress' phones jammed again

The L.A. Times reports, As he did earlier in the week, President Obama Friday urged Americans to contact members of Congress to push them to reach an bipartisan agreement to raise the nation's debt ceiling. And again, those listening appear to have heeded the call.

Shortly after the president's remarks, the House phone system was nearing capacity, according to an internal alert.

"Due to the high volume of external calls, House telephone circuits serving 202-225-XXXX phone numbers are near capacity resulting in outside callers occasionally getting busy signals," the alert said. "Outbound calls are unaffected."

After Obama and House Speaker John Boehner separately addressed the debt-ceiling crisis Monday, phone lines on Capitol Hill were similarly jammed and Web pages locked up. At the peak of the surge, House offices received a combined 40,000 phone calls -- twice the typical volume.

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We don’t want to alarm you but….U.S. balance now less than Apple’s cash

While it’s highly unlikely that President Barack Obama is looking to ask the founder and chief executive of Apple Inc. for a loan, the Financial Post reveals it became a fact as of Thursday afternoon — the world’s largest technology company now has more cash on hand than the most powerful democracy on Earth has spending room.

As Republicans and Democrats continue to work towards a compromise to the country’s debt ceiling crisis, the U.S. Treasury Department said on Thursday that Washington now has a total operating balance of only US$73.768-billion.

Meanwhile, Apple currently boasts a cash reserve of US$75.876-billion, as of its most recent quarterly earnings report at the end of June.

Of course, the numbers aren’t directly comparable; the government’s number represents how much financial headroom it has before bumping up against an arbitrary debt ceiling, while Apple’s cash reserve represents the pile of money the Cupertino, California-based company has available on its balance sheet..

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Advisers deluge investors with advice over debt crisis

According to Reuters most financial advisers are holding a lot of hands this week. Many of their clients, with the horrors of the financial crisis so fresh, are getting scared by the possibility of a United States' debt default.

But while Americans may blame sleepless nights on their lawmakers, they can't complain too much about the range of advice they are getting from the financial community. If anything they may be getting overloaded. Using not only email, text messages, websites and phone calls, but all the social media tools like Facebook and Twitter, financial advisers have sought to preach the need for calm on a mass scale this week.

Indeed, if there is a deal in Washington to extend the debt ceiling before the U.S. government threatens to default it could go down as one of the most over-communicated financial non-events ever, even rivaling Y2K in 1999.

"It's my practice's position that we should be more disgusted by what is happening than fearful," said Scott Tiras, a senior financial adviser with Ameriprise Financial in Houston, who has has done his communicating with 650 clients mostly via mass email, spelling out his theories that this is a short-term event. "We believe that this too will pass but not necessarily without volatility in the short run," Tiras said. "We are not suggesting any major portfolio changes at this time," he wrote in an email to clients this week….


The Golden Era of Rock Star Traders is History

If Bloomberg suggests that money can be dull, they ought to know. There are only so many denominations, and only so many ways to make it. What’s interesting are the people who risk it, and over the past four decades no one has made more of a spectacle of risk than George Soros, whose Quantum fund famously bet $10 billion that the Bank of England would be forced to devalue the pound. Soros earned $1 billion on that trade and incalculable legend points.

Now, Soros is going to stop risking other people’s money. By the end of this year, his Soros Fund Management LLC will have no outside customers for the first time in 42 years. The shift concludes a process that began in 2000, when Soros stopped accepting new investments, Bloomberg Businessweek reports in its Aug. 1 issue.

There’s a two-word explanation for closing what was once one of the world’s biggest hedge funds and consistently one of the best-performing --- with returns of about 30 percent annually in its first 30 years: Dodd-Frank. The law requires hedge funds to register with the Securities and Exchange Commission and provide information about customers, employees and assets. By returning outsiders’ money, Soros Fund Management escapes that rule and the loss of privacy that goes with it….

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Bummed Out You Can’t Invest with George Soros Anymore? Maybe You Can If ….

Washington has already defined what is “rich.” Now they’re defining what counts as “family” for the rich, the Wall St Journal reports. The definition is part of Dodd-Frank and applies to family offices – the private operations used by rich people to manage their investments, personal bills and philanthropy. Family offices will be exempt from registering with the SEC under the new law. But hedge funds and private-equity firms have to register. So to make sure hedge funds can’t just call themselves family offices, the SEC issued a set of guidelines on what counts as “family” for a family office.

Here’s the official definition of family members:

“Family members include all lineal descendants (including by adoption, stepchildren, foster children, and, in some cases, by legal guardianship) of a common ancestor (who is no more than 10 generations removed from the youngest generation of family members), and such lineal descendants’ spouses or spousal equivalents.”

For instance in-laws no longer count as family — which may be happy news to some wealthy husbands and wives, but bad news for the in-laws. Some cousins, uncles and nieces and nephews are also out….

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Rumblings Of Panic Begin

The reverb of Washington’s impasse over a debt deal are already being felt in the short-term credit markets, a key artery of the economy that daily supplies trillions of dollars of credit, according to the NY Times’ Dealbook.

Over the last week, big banks and companies have withdrawn $37.5 billion from money market funds that invest in Treasury debt and other ultra-safe securities, the biggest weekly drop this year. Meanwhile, in the vast market for repurchase agreements, in which many financial firms make short-term loans to one another, borrowers are beginning to demand higher yields.

These moves underscore how companies and big financial institutions are beginning to rethink their traditional view that notes issued by the United States Treasury are indistinguishable from cash, even though many experts say they think it is unlikely that the government would miss payments on its obligations.

The $37.5 billion drop, reported Thursday in a weekly survey by the Investment Company Institute, echoed what other analysts were seeing

20 Biggest Banks Called To New York Fed To Discuss Debt Crisis

Execs from the biggest Wall Street banks have been called to the New York Fed to talk with Treasury Department officials about what will happen if the debt ceiling isn't raised by August 2nd, the AP reported.

Banks have been desperate for any information from the Treasury and the Fed about contingency plans if the U.S defaults or has its debt downgraded from AAA, but neither institution has been willing to engage with Wall Street firms.
"The Treasury late Thursday invited 20 of the largest banks to a meeting to discuss an upcoming quarterly auction of government debt," the AP reported. The meeting will happen at midday.

Representatives from the bond-trading groups at JP Morgan, Citi, Goldman, and Barclays will be there

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Thursday, July 28, 2011

BofA Prop Trading Team Snapped Up By Izzy Englander's $11 Billion Hedge Fund

Izzy Englander's $11 billion hedge fund, Millennium Management, "hired a proprietary- trading team formerly at Bank of America," Bloomberg reports.

An eight-person team headed by Linus Wright, and which was part of the bank before the Merrill acquistion, begin at Millennium in London in August.

"Englander said in November that it was the best time in 15 years to hire traders as banks shuttered their proprietary- trading businesses to comply with U.S. financial legislation," according to Bloomberg.

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Layoff Watch: More job cuts coming to Wall Street

Marketwathc reports: “…The securities industry still employs about 800,000 people nationwide, according to the Securities Industry and Financial Markets Association. That is only 7.8% fewer than the all-time high, and roughly the same as in 2006.

It isn’t a stretch to think that employment could fall to 2003 levels, meaning another 50,000 job cuts. And, in a worst-case scenario, the decline could feel like a throwback to pre-tech bubble days, when the industry employed 100,000 fewer people than at the end of March.

So, no, your eyes aren’t deceiving you. Wall Street is shrinking. Lanes are closing. They may stay that way for a while...


Goldman-Citi Offering Is Pulled Over Ratings

Goldman Sachs Group Inc. and Citigroup pulled a $1.48 billion commercial mortgage-backed security from the market late Wednesday after an 11th-hour internal review by Standard & Poor's, throwing the CMBS world into disarray, according to the Wall St Journal.

The move surprised analysts and investors since Goldman Sachs and Citigroup had already priced the issue last Friday based on preliminary ratings. The firms were hours away from settling the issue.

"I've never seen this happen, to the extent where a deal was so far along, ever," said David Viklund, a laywer at Paul Hastings who has practiced in real-estate finance since 1995. It could hurt ...

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Yellow Alert: Insiders selling at unusually fast pace

According to MarketWatch, Bad news, stock-market bulls: Corporate insiders are selling their companies’ shares at an abnormally fast pace. In fact, one measure of that selling activity shows insiders of NYSE- and AMEX-listed companies recently were selling at the fastest rate since data began being collected in the early 1970s, four decades ago.

On the theory that insiders know more about their companies’ prospects than do the rest of us, this is an ominous sign. Corporate insiders, of course, are a company’s officers, directors and largest shareholders. They are required to file a report with the Securities and Exchange Commission more or less immediately upon buying or selling shares of their companies, and the SEC makes those reports public.

One firm that gathers and analyzes the data is Argus Research, which publishes its findings in the Vickers Weekly Insider Report. One indicator that the firm calculates is a ratio of the number of shares that insiders have sold in the open market to the number that they have purchased. In the week ending last Friday, according to the latest issue of the Vickers report, this sell-to-buy ratio stood at 6.43 to 1. This is higher than 95% of other weeks’ readings over the last decade. That’s ominous enough, but consider last week’s sell-to-buy ratio for just those issues listed on the NYSE or AMEX. That came in at 13.10 to 1, which is the highest reading for this ratio since when Vickers began collecting the data, which was October 1974….

‘Nuff Said, readers...

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Bankers: Here's 10 Reasons Why You Should Request A Transfer To Shanghai Right Now

Yesterday BusinessInsider found out that Shanghai needs you (yes, you) to go work in its financial sector. Beijing wants the city to become a financial hub to rival New York and London by 2020.

Apparently one of the biggest hindrances to that goal being achieved, is there aren't enough financial professionals there. That means, of course, the city will have to be banker-friendly, so we decided to check it out for you.

As it turns out, the most populated city in China may, in fact, already be ready for you……

1. The cost of living is super low, so your salary will take you places…
2. You won't be alone, there are tons of expats living in Shanghai.
3. All the big banks are there.
4. But if you don't want to do real work, they'll pay you just for showing up.
5. Wondering where you'll live? Shanghai is getting its own Greenwich CT!

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In Debt-Ceiling Chicken, Markets Are Betting the Wrong Bird

The Wall St Journal writes: Don't feel badly if you have been confused about the debt-ceiling debate during the last week. We are getting two very different messages about what missing the deadline might really mean. Washington is telling us that a failure to reach an agreement on future spending and raise the debt ceiling would be catastrophic. It is probably the only thing the majority of Democrats and Republicans agree on.

Wall Street, on the other hand, is telling us not only that the deadline isn't as dreaded as the politicians suggest, but that the actual chances of missing it are slim. Washington would never risk a debacle, the thinking goes. To back it up, the stock market, even accounting for Wednesday's drop, is off just 4.3% from its year-to-date high. Bond markets, where you would expect more anxiety, are unmoved.

Put another way, the lawmakers seem to be underestimating the markets and the markets seem to be overestimating the lawmakers. This conflicted view may be the rare case in modern history where Washington actually has a better grip on reality than Wall Street…

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Big Bonuses Go The Way of All Flesh; Goldman Traders Bail

According to HuffPo more than a dozen traders have quit Goldman Sachs Group Inc's (GS.N) North American government bonds and derivatives trading desk in New York in recent months as the bank takes fewer risks and big bonuses for ambitious traders dry up.

Goldman has been handing out promotions and better pay to its salespeople, rather than the traders who manage the bank's inventory of securities and derivatives, people familiar with the bank's operations said.The changes reflect Goldman's shift toward client trading and away from making money by betting for its own account, those sources said. Weak trading in general has compounded Goldman's difficulties as it struggles to earn profits from clients without the help of its market bets, analysts said.

It makes sense for Goldman management to reward sales staff over traders these days, said Susquehanna Financial Group analyst David Hilder. "The client franchise is paramount," said Hilder. "You need sales people to deal with and talk to the clients. Over the long term, that's more important than a few guys trading bonds……"

Hurry Up and Wait: Highly Anticipated Vote on Doomed Bill Delayed

GOP leadership is apparently having a lot of trouble wrangling 218 Republican votes for Speaker John Boehner's budget plan (which every Democratic senator has vowed to oppose) because the vote, which was expected to take place around 6 p.m. tonight, has been delayed. Now they're just doing busywork. NBC News reports: "Boehner's bill has been pulled off the floor for the time being. The House is now re-naming post offices.


Madoff Trustee Scores $1 Billion Settlement With Feeder

The court-appointed trustee recovering money for investors swindled by Bernard Madoff has reached a settlement of more than $1 billion with Tremont Group Holdings Inc., one of the largest alleged feeders of money into his Ponzi scheme, according to the Wall St Journal.

The settlement, filed in U.S. Bankruptcy Court in Manhattan, is one of the biggest reached since the multi-billion dollar fraud came to light nearly three years ago. It brings to about $11 billion the amount that a court-appointed bankruptcy trustee, Irving Picard will ultimately be able to return those cheated by Mr. Madoff, who is serving a 150-year prison sentence….


One Quick Word On The Markets And Tonight's Big Vote

Obviously it's impossible to know for sure how the market will react to tonight's House vote on the Boehner plan. BusinessInsider notes that since it is the first big, suspenseful vote of the whole process, and since it's all anyone is talking about today, some kind of reaction is probably inevitable.

If it fails, it's easy to imagine a selloff in futures, and if it passes, then the reverse could happen. But even if it does pass, the next news that comes out (probably tonight) is the Senate kills it, at which point it will appear that we're at STALEMATE WITH JUST 100 HOURS TO GO.

But even this isn't necessarily the best characterization, since the (presumed) next step would be Reid melding his plan with Boehner and sending it back to the House, which in reality was always the most plausible way for a bill to pass both Houses.
All of this is to say that tonight could be big on headline fireworks, but not necessarily reflective of final outcomes…..

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Debt Deal Warnings From Bank CEOs Blankfein, Dimon, & Moynihan

HuffPo reports that CEOs from the nation's largest financial firms Thursday pressured the White House and Congress to reach a deal on the debt ceiling and deficit reduction, saying the consequences of inaction ''would be very grave.''

JPMorgan's Jamie Dimon, Goldman Sachs' Lloyd Blankfein and Bank of America's Brian Moynihan, among others, said in a letter that an agreement needs to be reached this week.

"A default on our nation's obligations, or a downgrade of America's credit rating, would be a tremendous blow to business and investor confidence -- raising interest rates for everyone who borrows, undermining the value of the dollar, and roiling stock and bond markets -- and, therefore, dramatically worsening our nation's already difficult economic circumstances,'' the letter said…

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Layoffs 2011: HSBC May Cut 10,000 Jobs!

Holy Hannah! HSBC may slash 10,000 jobs as it attempts to cut $3.5 billion in expenses, Sky News reported.

There has been a ton of layoffs across Wall Street in recent months, but this is the biggest number we've heard about so far…


Meet the man with his finger on the U.S. Doomsday button

The world's most powerful credit-rating nerd -- his finger poised on the doomsday button of the US economy -- says all this talk about a temporary solution to the country's deficit and debt ceiling isn't good for those looking to hold on to Uncle Sam's AAA debt rating. At least according to the NY Post.
David T. Beers, the Standard & Poor's executive who will ultimately decide if the US debt gets downgraded to AA -- forcing Americans to pay more for almost any type of loan while possibly leading the stock markets lower -- is the otherwise anonymous analyst thrust into the spotlight.

The 56-year-old will decide, possibly in the next week, if he will take the US credit rating down from AAA -- where it has rested since 1941.
"Ultimately, we've got to look at the overall plan to make a judgment as to whether it's likely to make a difference in the rising US debt," Beers told an interviewer yesterday.

While he refused to throw his support behind either the Democrats' or Republicans' plan, Beers said that passing a temporary solution that will force the country -- and his ratings agency -- to revisit the issue in several months "would be negative" in his downgrade review….


Desperate Bankers Are Begging The Fed To Discuss Default Emergency Plans With Them But Are Being Left In The Dark

Across Wall Street, bankers and traders -- including company executives -- are aggravated that the Fed "is refusing to engage in scenario planning for a US downgrade or default," the FT reports.

According to the FT, Wall Street is desperate for answers to questions including:
Will the Fed "lend against Treasuries with a defaulted interest payment?"
Will the Fed "support the refinancing of Treasury securities by stepping in and buying any unsold stock at auctions?"

Bankers want the Fed to provide its thinking on contingency plans for several possible outcomes of a downgrade or default. The potential fallout about which the banks are most concerned involves a possible "run on money market funds that hold Treasury bonds, the impact on capital and liquidity ratios if there are large inflows or outflows of deposits and the potential effect on short-term financing from any problems in the repurchase, or “repo”, market...."

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Credit Suisse Q2 profit dives by more than half

Marketwatch writes that Credit Suisse reported below-forecast second-quarter earnings and said it would cut approximately 4% of its workforce. The Swiss bank's April-June net profit fell to 768 million Swiss francs ($958 million) from 1.6 million francs in the year-earlier quarter, with the lender citing poor trading results and a strong Swiss currency. The profit result missed an median forecast of 1 billion Swiss francs in a Reuters survey.


Phil Falcone: kill or cure

Depending on whom you ask, Phil Falcone's new 4G wireless venture, LightSquared, is either going to kill planeloads of people -- or help save lives.

A Federal Aviation Administration study quietly released this month says the proposed venture -- which could make or break Falcone's rocky career -- may cost 794 lives in aviation accidents over 10 years with disruptions to satellite-aided navigation, according to Bloomberg News, which obtained a copy of the report.
LightSquared and its supporters, meanwhile, have been getting louder about how important their satellite system will be in coordinating enforcement and emergency response teams during natural disasters, like Hurricane Katrina.
"In an emergency, the last thing public safety workers should have to worry about is their ability to communicate with each other," said Sanjiv Ahuja, chairman andLightSquared CEO.

The talk of life and death at the hands of LightSquared comes as the debate escalates over whether to kill LightSquared over complaints that the upstart network will interfere with commercial navigation devices used by tractors and air-traffic controls. Falcone's Harbinger Capital Management has invested close to $3 billion in LightSquared, which has promised to fix 99.5 percent of the interference problem.

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Wall Street Watch: Traders Postponing Vacations Because They're Too Scared To Leave The Floor Before August 2

Trading floors across the country -- which are quiet because trading floors are increasingly empty, and should be more so at the moment because it's summer -- are oddly busy at the moment. Apparently it's all because of the debt ceiling stand-off.
"At Wall Street banks and investment firms, many traders are putting vacation plans on hold so they can be at their desks Aug. 2" the LA Times reports.

"Trading floors Street-wide are unusually well populated for this time of year. You will see very few people on vacation," one trader from Knight Capital told the Times.
But they're not doing much of anything. Another trader at the NYSE described the situation like this: "We're literally sitting on our hands and just waiting….

If You Want A Job At A Hedge Fund Get Thee To Penn, Syracuse And NYU Immediately

“…A closer look at 2011 senior hires found that 75% of those with Penn/Wharton, Yale, and Harvard undergraduate degrees are working as investment professionals (analyst and portfolio manager), the highest-paid jobs in the industry.

About 60% of experienced hires with Princeton, Stanford and Duke degrees are actively investing, as are about half those with degrees from NYU….

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Look Who Is Gonna Cut 2,000 Jobs

Credit Suisse Group Thursday said it will cut 4% of its workforce to slash spending after second-quarter net profit dropped by more than half, hammered by the strong Swiss franc and a trading slump.

Zurich-based Credit Suisse joined crosstown rival UBS AG in launching a cost-cutting drive, which will cost up to 450 million Swiss francs ($562.5 million) in restructuring charges this year. The cutbacks translate to more than 2,000 job reductions, in part because securities markets and client activity have been too weak to justify large investment banking units….

Thinking The Unthinkable: Breaking up Big Banks Now Seems Feasible

.. Even in the face of investor pressure, there are forces that would hold bank breakups back. Mainly pay, NY Times Dealbook reports.

“The biggest motivation for not breaking up is that top managers would earn less,” Mr. Mayo said. “That is part of the breakdown in the owner/manager relationship. That’s a breakdown in capitalism.”

Institutional investors — the major owners of the banks — are passive and conflicted. They don’t like to go public with complaints. They have extensive business ties with the banks. The few hedge fund activist investors who aren’t cowed would most likely balk at taking on such an enormous target. Also, there are reasons to think that smaller banks wouldn’t necessarily make the system safer. A wave of small bank failures can have systemic effects, as was the case in the Great Depression. Focused companies like Washington Mutual and Bear Stearns failed in the recent crisis, worsening it.

Making a nuanced argument, John Hempton, a blogger, investor and former regulator in Australia, says that it’s better for shareholders — and societies — to have large banks with lots of market power. That makes them more profitable and leads them to take less risk, making them safer and more enticing for investors….


Banks Bracing for Downgrade See Little Panic

Bloomberg reports that U.S. banks searching for hints of credit-market distress ahead of next week’s deadline to raise the U.S. debt ceiling are finding few signs of panic so far.

Commercial banks and securities firms are tracking how money-market funds adjust holdings and whether participants in repo markets, where financial firms obtain short-term financing, change terms for collateral including Treasuries, according to executives in charge of finance operations at five of the largest U.S. banks. They are also looking for disruptions in commercial paper and swaps markets, said one of the people, who declined to be identified because the deliberations are private.

Lenders are making contingency plans in case President Barack Obama and Congress fail to reach agreement before an Aug. 2 deadline. Commercial banks are focused on a potential downgrade to the U.S. debt rating, with a default considered unlikely, said the executives. With less than a week to the deadline, key market indicators have remained stable….

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Are Hedge Funds ‘Too Big to Fail’?

A year after Dodd-Frank was signed into law, regulators still have not decided which large financial firms pose a risk to the financial system, The Wall St Journal says. Hedge funds want to be excluded. They may have a point, according to a new paper by two academics at Columbia Business School and a Citigroup executive.

The average hedge fund is “modestly leveraged,” with borrowed money amounting to just over two times the fund’s equity, according to the research. What’s more, funds reduced their leverage ahead of the housing crisis, even as banks increased leverage. In the first quarter of 2009, the average fund was leveraged at 1.4 times its equity, even as leverage at investment banks topped 40 times, says the paper, which is based on data from various funds of hedge funds.

Hedge-fund leverage began falling in the middle of 2007, likely because fund managers were becoming nervous, say the authors, who claim their study is the first to examine actual hedge-fund borrowings, rather than leverage estimates….

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Senator calls Soros hypocrite for reforms dodge

Reuters reports that Prominent Republican Senator Richard Shelby accused billionaire investor George Soros of hypocrisy on Wednesday for evading new hedge fund regulations he once publicly backed.

Soros recently said he would return money to outsider investors and only manage his own family's funds to escape the Securities and Exchange Commission's new hedge fund adviser registration rules.

"It appears that Mr. Soros talked up financial reform only to sell it short," Shelby told Reuters in a statement. "Don't be surprised to see his fellow Wall Street financiers follow suit. They'll use their political clout and legal muscle to sidestep Dodd-Frank, while their smaller competitors and businesses take the hit."

By giving back investors' money -- which is a small slice of the roughly $25 billion Soros oversees -- Soros is taking advantage of an exemption in a recently approved SEC rule required by the Dodd-Frank Act….


Wednesday, July 27, 2011

Calling All Bankers: They Want You In Shanghai

Dissed by your boss? Can't get that corner office? China wants to turn Shanghai into a financial center that could rival New York, Singapore, Hong Kong and London by 2020. According to BusinessInsider there's just one small problem.

Via China Daily:

Foreign banks and local securities companies are scurrying to find workers with the right skills and experience. Even Tu Guangshao, Shanghai's vice-mayor in charge of finance services, says the greatest inhibitor to the city's bid to be a world financial center is the lack of professionals.

In April, 56% of Shanghai companies surveyed by said that they were looking to expand. Of those, 95% said they were hampered by the lack of talent in town. In another survey, of financial professionals working in Shanghai, 77% said they were happy with their jobs but looking for other opportunities. 13% said they hated their jobs.

"As the financial services sector in China is constantly challenged by changes, organizations are looking out for middle- to senior-level professionals who possess high levels of initiative and the ability to build long-term relationships with clients as well as autonomously sell products and services that are targeted to individual client needs…


How U.S. May Have Way to Cover Bills for Week After Deadline, (and piss off 40 million citizens)

The New York Times reports that it turns out the federal government is sitting on some extra cash. Thanks to an inflow of tax payments and maneuvering by the Treasury Department, the government can probably continue to pay all of its bills for several days after Aug. 2, providing potentially critical breathing room for Congress to raise the debt ceiling, according to estimates by several Wall Street banks and a Washington research organization.

The consensus is that the government will not run short of money until Aug. 10, when it would be unable to cut millions of Social Security checks without borrowing more money…


Steve Cohen’s Heartbreak Hotel

Down at the end of Lonely Street..…Unfortunate news for the legions of Steve Cohen fans dying to have the hedge fund manager sign their underwear or invest with SAC Capital– despite some wishful thinking by a few haters in the industry that he’d be negatively affected by the Feds going after a few pissant former employees for insider trading, investors have continued to throw money at the Big Guy, so much so that he’s going to have to break a few hearts, according to Dealbreaker/BusinessInsider..

Steve Cohen of SAC Capital Advisors is officially closing his flagship fund, beginning August 1. It is being called a “soft close,” but the distinction from a hard close is not obvious. It will no longer accept additional money from new investors or existing investors. “I love it,” proclaimed one SAC investor, who prefers his funds not grow too large, especially from hot money that tends to bail out of funds in general at the first whiff of underperformance....


Crimes and Misdemeanors: The Weird Muddy Waters Saga

Muddy Waters has filed a lawsuit in a U.S. court, alleging a fake press release defamed it and saying an imposter claiming to work for the research firm had tried to blackmail a company for $2 million to withhold a damning report, those fine folks at CNBC write.

Hong Kong-based Muddy Waters and its director of research Carson Block have shot to prominence in recent weeks after issuing research reports alleging accounting irregularities against over half-a-dozen Chinese companies listed in North America, driving down their stock prices.

The lawsuit, naming Muddy Waters and Block as plaintiffs and filed with the Los Angeles Superior Court on July 20, alleges that an individual in Hong Kong impersonated himself as an employee of Muddy Waters and issued threats to an unnamed company. The individual, whose identity is unknown, allegedly blackmailed the company seeking $2 million in exchange for holding back a research report….

Muddy Waters separately claimed that a June 21 press release stating that the U.S. Securities and Exchange Commission had charged Muddy Waters and Block with fraud, and alleged Block was involved in market manipulation schemes issued on free news wire service was defamatory in nature and was issued with malice...

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News You Can Use: How To Bump Up Your Career Status In an Economic Downturn (If You Have the Stomach For It)

)Efinancialcareers wrires: when someone’s head is on the block, you may as well offer to pick up his or her accounts. So says San Francisco-based career coach and jobs transition specialist Don Asher, author of several books including, Who Gets Promoted, Who Doesn’t, and Why.

You can’t always get paid in a downturn but you can amass power,” Asher says. Harsh though it may sound, if someone in your office is not at the top of his or her game and you see the writing on the wall that ‘George’ is apt to lose his position through a reorganization—while your own business has been going strong—you might just decide to take the bull by the horns…..

Take your boss to coffee and….


SEC builds new tips machine to catch the next Madoff

For more than three years, U.S. securities regulators investigated allegations of accounting fraud at a small telecom firm called China Voice Holding Corp, but could not make a case, according to Reuters. Then last November, they got an unexpected break. A Texas-based tax consultant doing work for a firm affiliated with China Voice contacted the U.S. Securities and Exchange Commission with information about suspicious money transfers she'd detected.

The call from Dee Dee Stone was quickly routed to a preliminary version of the SEC's new $21 million "Tips, Complaints and Referrals" or TCR Database, which the agency later fully deployed in March. Within 24 hours, Stone, a former Internal Revenue Service agent, got a call from an SEC attorney spearheading the China Voice inquiry. Five months later, the SEC on April 29 sued several China Voice executives, claiming they had duped investors out of $8.6 million in a Ponzi scheme. Agency lawyers say without Stone's help, regulators may not have even discovered the scheme, let alone made a case so soon. The alleged fraud at China Voice was small in the annals of Wall Street sins. But the SEC's response to Stone is an indication that….

How QE3 may do more harm than good

Reuters reports that there may be a point at which global investors get indigestion from U.S. money printing. A fresh round of U.S. monetary easing may even do more harm than good for long-term investors as another flood of easy money into fast-growing emerging economies risks refueling oil and commodity price inflation, sapping consumption and growth.

Prospects for a third round of the Federal Reserve's quantitative easing program (QE3) grew this month after Chairman Ben Bernanke said the central bank was prepared to ease further if economic growth and inflation falter again.

Nearly in one in two fund managers surveyed by Bank of America Merrill Lynch this month said QE3 was likely. The temptation for risk-loving investors is to rub their hands with glee, but…

Missing millions, strippers and private jets: how the 'bad boy' of Wall Street went down

A broker known as Wall Street's "bad boy" has been convicted of defrauding US and European investors of $US140 million ($127 million), promising them rich returns while blowing their money on private jets, home renovations, prostitutes, strippers and classy London hotels, reports.

Ross Mandell, 53, shook his head throughout the reading of the verdict yesterday that convicted him of conspiracy and securities fraud charges. The jury also convicted a co-defendant, Adam Harrington, 41, of Miami. The Brooklyn born-Mandell was CEOchief executive officer of Sky Capital, which had offices in London, New York, Florida and New Jersey. Harrington was a senior broker for the firm.

The jury had deliberated over parts of three days during a five-week trial. After jurors left the courtroom, Mandell's sobbing wife hugged him for several minutes. US District Judge Paul A Crotty did not immediately rule on a request by prosecutors to jail Mandell as a flight risk, leaving him free on $US5 million ($4.6 million) bail.

The trial captured the hard-partying lifestyle brokers enjoyed during the dot-com boom of the late 1990s and early 2000s. An exhibit introduced by prosecutors showed that Mandell charged $US162,000 ($147,000) on credit cards at adult entertainment clubs in London and New York from May 2001 through to January 2006.

Prosecutors portrayed Mandell and Harrington as con men, saying they capitalised on the excitement over internet tech stocks by using their broker-dealer operation to solicit private investments in startups. Prosecutors said the defendants spent some of the investors' money living lavishly with private jets, expensive vacations, fancy cars and flashy watches. They said the men manipulated the value of stocks they sold to investors in part by paying brokers 400 per cent commissions to promote the stocks.

The scheme came to an end when one of the brokers was caught lying to an FBI undercover officer…

Ouch! States Miss Pension Targets by 50% Even With Private Equity

Those good folks at Bloomberg report that in the last decade, as a wave of baby boomers began retiring, America’s biggest state pension systems earned less than half what they needed to keep up with promises made to millions of graying civil servants.
The state of Washington’s 3.92 percent return for the 10 years through June 30, 2010, after fees, was the best in a Bloomberg survey of state pensions with more than $20 billion in assets. That was nowhere close to the average yearly gains of as much as 8 percent that fund managers and public officials count on for meeting obligations to retirees.

“To assume that the median plan will reach 8 percent given this environment, that’s optimistic to say the least,” said Karl Mergenthaler, an executive director in JPMorgan Chase & Co. (JPM)’s securities services group in New York. “Public plans have an incentive to maintain their expected rate where it is. The risk is that they’ll overreach for returns.”

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Surprise, surprise: Gold Surges Toward Record as ‘Go-to Asset’

Gold surged to an all-time high as investors sought to protect their wealth against the possibility of a U.S. default that may come as soon as next week amid a standoff over the country’s $14.3 trillion debt limit, according to Bloomberg.

Spot bullion rose as much as 0.4 percent to $1,625.70 an ounce, beating the previous peak of $1,624.07 set July 25, before trading at $1,624.55 at 2:09 p.m. in Singapore. The December-delivery contract gained as much as 0.5 percent to a record $1,628.10 an ounce on the Comex in New York…

“Gold, along with a few select currencies, is increasingly the go-to asset as investors seek it out for its safe-haven properties,” James Steel, an analyst at HSBC Securities USA Inc., wrote in a note. “The weakness in the U.S. dollar, the result of the debt impasse, is reinforcing the gold rally.”

Holdings of the metal in exchange-traded products rose 0.3 percent to a record 2,128.229 metric tons yesterday, data compiled by Bloomberg show. Cash and futures prices in China also reached all-time highs today…

Citi Seeks Dismissal of Madoff Trustee’s $430 Million Suit

Citigroup, accused by the trustee liquidating Bernard Madoff’s firm of ignoring warning signs of a massive Ponzi scheme, asked a bankruptcy judge to throw out the $430 million lawsuit, Bloomberg says.

The trustee doesn’t allege and can’t claim that Citigroup defendants had actual knowledge of the insolvency of Madoff’s firm or that any transfer they received was made with a fraudulent purpose, the New York-based bank said in a filing yesterday in U.S. Bankruptcy Court in Manhattan. The bank also rejected the trustee’s assertion that it should have detected the fraud at Bernard L. Madoff Investment Securities LLC.

“The trustee largely relies on the combination of widely known but innocuous information about BLMIS, along with obscure economic discrepancies developed by the trustee and his experts over the past two years,” Citigroup said in the filing...


Solid earnings lift FTSE in spite of U.S. debt anxiety

Reuters reports that top shares managed modest gains on Tuesday as solid results from blue-chips including drugmaker GlaxoSmithKline and energy firm BG Group more than offset an earnings miss from heavyweight BP.

Volume on the FTSE 100 .FTSE was thin, however, as investors waited for clarity from U.S. debt ceiling talks. The benchmark index ended up 4.47 points, or 0.1 percent, at 5,929.73, having traded within a 55-point range. Gains were capped by data showing anaemic British economic growth and an Italian debt auction which reignited investors' worries over the euro zone debt crisis...


Good News From Dr.Doom: US won't default ( but gird your loins for the fiscal drag)

Economist Nouriel Roubini, known for his prescient warnings about the 2008 financial crisis, said Tuesday the U.S. won't default on its debt but the country will suffer a fiscal drag, Marketwatch writes..

Investors have been spooked by recent news that with a debt default deadline next week, Democrat and Republican lawmakers have moved even further away from agreement, pushing separate plans for reducing the U.S.'s deficit and raising its borrowing limit.

"There are about eight days until the deadline. My baseline scenario is still an agreement will be reached. I don't think the U.S. will default," Roubini, a professor at New York University, told a forum in Shanghai.

But the U.S. economic slowdown is a chronic issue rather than merely a "soft patch," he said. Roubini said that growth in public consumption has been artificially boosted by the government deficit. So when the authorities eventually have to reduce spending, raise taxes, or cut transfer payments, not only will that be a fiscal drag, but will slow the growth of disposable income.
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UBS and Deutsche Bank Results' High Anxiety Over Risk

Two of Europe’s largest financial institutions delivered a reminder on Tuesday that investment banking remains a fickle source of revenue, as UBS issued a profit warning and Deutsche Bank reported earnings that were below expectations.

UBS, Switzerland’s biggest bank, warned that it would probably miss an earnings target set two years ago after its profit fell by half in the second quarter, in part because of a dismal performance at its investment banking unit. Deutsche Bank fared better, reporting a 6 percent increase in net profit that still missed forecasts. Revenue from trading fell because of uncertainty caused by Europe’s debt crisis, the bank said, while warning that profit from investment banking would fall short of targets.

The results may help reinforce Deutsche Bank’s decision on Monday to split its leadership between Anshu Jain, the head of its volatile investment banking business, and J├╝rgen Fitsche...….


Tuesday, July 26, 2011

Wells Fargo Target Of New Justice Department Probe

According to HuffPo the Department of Justice is preparing a lawsuit against Wells Fargo, the nation's largest home mortgage lender, for allegedly preying upon African American borrowers during the housing bubble and steering them into high-cost subprime loans, according to three people with direct knowledge of the probe.

The company, the fourth-largest U.S. bank by assets, is currently embroiled in pre-lawsuit negotiations with the Justice Department in hopes it will settle the accusations and avoid a public lawsuit, these people said.

The allegations mirror those in public actions taken by the Federal Reserve and a separate lawsuit filed by the city of Baltimore.

Last week, the Fed said that perhaps more than 10,000 borrowers were inappropriately steered into subprime mortgage loans or had their loan documents falsified by bank personnel. Wells Fargo agreed to pay $85 million to settle the civil charges. It did not admit wrongdoing….

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Grim News: California Borrows $5.4 Billion As Protection In Case U.S. Defaults

Bloomberg reports that Goldman Sachs Group Inc. and Wells Fargo & Co. led a syndicate of eight banks and investors who won the bidding to loan California $5.4 billion before any credit- market disruption should the U.S. default on its debt.

Citigroup Inc., Barclays Plc, JPMorgan Chase & Co., Bank of America Merrill Lynch, Morgan Stanley and US Bank also will participate, Treasurer Bill Lockyer said yesterday in a statement. The state will pay 0.237 percent, or about a third of the rate on comparable debt. The loan matures by Nov. 22.

Lockyer is rushing to borrow before an Aug. 2 deadline for President Barack Obama and Congress to reach a deal that would raise the U.S. debt ceiling and avert a default. Missing the deadline may cost the government its top-ranked credit rating, upend financial markets and send interest rates higher.

“California had to obtain this interim financing to protect the state from the immediate, drastic consequences of a failure by Washington to resolve the debt ceiling impasse,” Lockyer said in the statement.

Sky Capital’s Mandell Found Guilty in $140 Million Fraud

Sky Capital Holdings Ltd. founder and CEO Ross Mandell was found guilty by a federal jury in New York for operating what the U.S. said was an eight-year long scheme that defrauded investors out of $140 million, Bloomberg writes.

Mandell, 54, of Boca Raton, Florida, was found guilty of all four counts he was charged with, conspiracy, securities fraud, wire fraud and mail fraud, after a trial before U.S. District Judge Paul Crotty in Manhattan.
Adam Harrington, 41, of Miami, a former broker at the firm who was tried with Mandell, was found guilty of the same four counts.
Mandell and Harrington were accused of manipulating shares in two Sky Capital companies traded on the Alternative Investment Market of the London Stock Exchange. The U.S. said the two solicited millions of dollars from victims for what they claimed were restricted stock offerings or private placements that promised large returns…


If There's a Debt Deal, These Four Will Make It Happen

According to the AP report, for all the debt deal dynamics in Washington, a final agreement really comes down to a gang of four: Senate Majority Leader Harry Reid and House Speaker John Boehner.

It's this quartet — Speaker John Boehner, R-Ohio, and Minority Leader Nancy Pelosi, D-Calif., in the House; Majority Leader Harry Reid, D-Nev., and Minority Leader Mitch McConnell, R-Ky., in the Senate — who will have to draw on their experience, skill and charm to find the deal and the votes to pass it for averting an unprecedented government default next week.

It also has to be a deal that can get President Barack Obama's signature….

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The Curious Case of the Ex-Morgan Stanley Analyst Framed For Armed Robbery

Soon after Morgan Stanley-ite Seemona Sumasar started dating Jerry Ramrattan, she had an inkling that something might be wrong. According to the NY Times report he said he was a police detective, but never seemed to go to work. He seemed obsessed with “C.S.I.,” “Law & Order” and other television police dramas.

About a year after he moved into her house in Queens, their relationship soured. One day, he cornered her, taped her mouth and raped her, she said. Mr. Ramrattan was arrested. But he soon took his revenge, the authorities said. Drawing on his knowledge of police procedure, gleaned from his time as an informer for law enforcement, he accomplished what prosecutors in New York called one of the most elaborate framing plots that they had ever seen.

One night, Ms. Sumasar was pulled over by the police. Before she could speak, detectives slapped handcuffs on her. “You know you did it,” she said one later shouted at her. “Just admit it.”

Ms. Sumasar, a former Morgan Stanley analyst who was running a restaurant, said she had no idea what that meant. Yet suddenly, she was being treated like a brazen criminal. She was charged with carrying out a series of armed robberies, based on what the police said was a wealth of evidence, including credible witness statements and proof that her car was the getaway vehicle.

In her first extensive interview about her ordeal, she recalled sitting in jail, consumed by one thought: “Jerry is behind this.” But when she insisted to the authorities that he had set her up, they belittled her claims. Now, though, they concede that Ms. Sumasar was right — an astonishing turn of events that has transformed her case into one of the most bizarre in the city’s recent history. They released her from jail last December after seven months, acknowledging that the entire case against her had been concocted by Mr. Ramrattan, officials said….

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Huge: Soros Returning All Outside Investor Money, Keeping It In The Fam

Soros And Sons said they’d rather hand back the $1 billion than be required to register with the SEC.

Soros’s sons said they took the decision because new financial regulations would have made it necessary for the firm to register with the Securities and Exchange Commission by March 2012 if it continued to manage money for outsiders. Because the firm has overseen mostly family assets since 2000, when outside money accounted for about $4 billion, they decided it made more sense to run it as a family office, according to the letter.

The rule calls for hedge funds with more than $150 million in assets to report information about their investors and employees, the assets they manage, potential conflicts of interest and their activities outside of fund advising. Registered funds will also be subject to periodic inspections by the SEC….


DEBT CEILING a la Goldman

From Goldman's Alec Phillips (accordng to BusinessInsider):

….Timeline: Senate floor consideration has started, House moving forward for Wednesday vote. The Senate began consideration today of a debt limit increase this afternoon. At this point the bill is unlikely to come up for a vote before Thursday. House leaders are expected to bring up their bill by Wednesday for a vote. There is a possibility of amendment to either proposal prior to those votes. Moreover, after each chamber passes its respective bill, it can be amended by the other chamber. The stated deadline for enacting a debt limit extension is August 2. Although the usual legislative timeline can take up to 8 days for House and Senate passage, if a deal is reached it can be expedited (as it was in April, when a deal to avert a shutdown was reached the evening of April 8th, and was enacted only a few hours later around midnight).

While there is a clear risk that legislative consideration goes past the August 2 deadline, a deal still seems more likely to be enacted just ahead of the deadline. In the less likely scenario that the deadline is missed, spending would be cut sharply but the lapse in borrowing authority would very likely be brief and would almost certainly be resolved prior to the August 15 Treasury coupon payment...


Actually, There Is A Real Plunge Happening This Morning

The mood this morning is mostly: What panic?

The lack of a debt ceiling deal isn't seriously roiling equity markets, and Treasuries don't really care at all.

But this is quite a move for The Greenback, which is just getting smoked against the Swiss Franc and the yen. In fact, the Franc has made a 2% move against the dollar, which is looking more and more like a currency issued by a joke of a country....

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Crazy, Mixed Up Confusion follows relief as Greek bond swap looms

Reuters writes that just days after European policymakers toasted a 109 billion euro ($156 billion) bailout aimed at hauling Greece back from the brink of insolvency, speculation some of its hapless bondholders might opt out of a crucial distressed debt exchange is gathering pace - to put it mildly

Greek creditors in banking, insurance and fund management are baying for more clarity on a proposed 'voluntary' scheme in which debt can be swapped for 15-year or 30-year bonds paying interest Greece can more easily afford, and slashing its debt.

Bank lobby group the Institute of International Finance reckons 90 percent of Greek government bondholders will take a 21 percent haircut on their holdings to take part in the offer. But some investors are debating the value of boycotting, particularly as heavily exposed lenders and insurers rush to endorse the plan in moves that may improve non-participating smaller bondholders' chances of being paid on time and in full.

"If you do a selective default -- allowing investors across the board to opt in but you only actually get a few holders carrying 40 or 50 percent of the total exposure to do it --that ... means you can afford to pay out more of the smaller holders," Colin Harte, a director of fixed income and currency at Baring Asset Management, told Reuters….


Dollar, Treasuries Fall on U.S. Debt Outlook

U.S. Speaker of the House John Boehner said separately he’s made a “sincere effort” to work with Obama on a plan to raise the debt limit, adding the president created the “crisis atmosphere” surrounding the issue. Photographer: Joshua Roberts/Bloomberg
The dollar sank to a record low versus the Swiss franc and Treasuries fell as President Barack Obama and House Speaker John Boehner struggled to agree on the U.S. debt limit, Bloomberg reports.

The U.S. currency slid 0.7 percent against the Swiss franc as of 4:03 p.m. in Tokyo and weakened below 78 yen for the first time since March. Ten-year Treasury yields advanced three basis points. The MSCI Asia Pacific Index jumped 1 percent, the Stoxx Europe 600 Index lost 0.2 percent, while Standard & Poor’s 500 Index futures rose 0.4 percent. Gold traded near a record high, and copper snapped a four-day loss.

“From the two speeches we’ve heard, it doesn’t seem like they’re on the doorstep of coming up with a deal,” Stephen Halmarick, the Sydney-based head of investment markets research at Colonial First State Global Asset Management, which oversees about $150 billion, said in a Bloomberg Television interview. “Markets will remain fairly nervous.”

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RBC Seeks to Spend as Much as C$1 Billion on Takeovers

Royal Bank of Canada may spend as much as C$1 billion ($1.06 billion) to buy asset managers outside Canada as the country’s largest lender seeks to triple profit from wealth management in the next four years, according to Bloomberg.

“We would be interested in small and medium-sized acquisitions that could bolster our U.K., European and Asia equity capabilities,” said George Lewis, group head of wealth management, in a July 22 interview in Toronto.

Royal Bank set an annual profit goal of C$2 billion from wealth management by 2015, or three times more than the C$669 million it earned from the business in the fiscal year ended Oct. 31, Lewis said. About 30 percent of that growth is based on financial markets delivering a 6 percent average annual return over the period and “normalized” interest rates.

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UBS slashes earnings targets

The Wall St Journal reports that UBS AG said Tuesday it will cut an undisclosed number of jobs as it slashes up to 2 billion Swiss francs ($2.48 billion) in costs after second-quarter net profit collapsed by almost half.

UBS reported net profit fell to 1.02 billion francs for the three months ended June 30, from 2.01 billion francs a year earlier. Revenue slumped 22% to 7.17 billion francs, as income from fixed-income activities slid. Meanwhile, UBS's flagship private banking arm also suffered from the strong Swiss franc, which ate into revenue, profit and assets held ...

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Stop the Presses! Could U.S. Avoid Default Until September (and beyond)?

The U.S. government can avoid a default for at least a month after the Aug. 2 deadline to lift the debt ceiling set by the Treasury Department, said John Silvia, chief economist at Wells Fargo Securities LLC told the gurus at Bloomberg.

“The Federal Reserve and the Treasury can work together to generate enough cash probably for the next two or three months to avoid any kind of automatic default on the Treasury debt,” Silvia, who is based in Charlotte, North Carolina, said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “There’s a way of getting around this issue for at least another month or two.”

Greater-than-forecast tax revenue might give the Treasury until Aug. 10 before it runs out of cash, Barclays Capital said in a report last week.

“Tax-receipt inflows from July 14 to date have been considerably stronger than we were expecting,” New York-based Barclays analysts, including Ajay Rajadhyaksha, said…

Louisiana Probe Broadens

The Wall St Journal reports that the Louisiana state legislative auditor said he is in the early stages of an examination of public pension funds that got advice from a Memphis, Tenn., consulting firm that recommended an unusual investment.

The interest in the funds and the consulting firm, Consulting Services Group LLC, comes after three of the funds raised questions about the investment earlier this month. On Monday, pension-board representatives separately are planning an on-site review at the hedge-fund firm that offered the investment, New York-based Fletcher Asset Management, CSG said.

In 2008, the three Louisiana public pension funds put a combined $100 million in the ...