Wall Street Breakfast: Must-Know News 13 comments
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- Paulson fibbed to clinch TARP. Then-Treasury Secretary Henry Paulson misled the public about the health of U.S. banks in order to seal the $700B TARP rescue package, according to TARP Inspector General Neil Barofsky. On Oct. 14, Paulson said TARP recipient banks were healthy, and that they took the money for "the good of the U.S. economy," in order to boost lending. In truth, regulators were already concerned that some banks were teetering. Barofsky's report, to be released today, also implies Bank of America (BAC) should have qualified for more aid earlier, but funds were withheld pending its merger with Merrill. In response to the report, TARP director Herb Allison said any review of the government's actions "must be considered in light of the unprecedented circumstances in which they were made."
- PPIP to swell to $12.27B. The Treasury will announce today that AllianceBernstein (AB), BlackRock (BLK) and Wellington Management have raised a combined $1.94B to participate in government's scheme to soak up toxic assets from banks, known as PPIP. For their efforts, the Treasury will match the $1.94B dollar for dollar, and provide debt financing to double that, bringing their total purchasing power to $7.74B. Last week Invesco (IVZ) and TCW became the first two PPIP investors with a combined $1.13B.
- CIT failure would benefit Goldman, hurt taxpayers. Sources say Goldman Sachs (GS) stands to earn a $1B 'make-whole payment' from CIT Group (CIT) if it files for Chapter 11 or otherwise terminates a $3B financing facility extended by Goldman last June. On the other hand, U.S. taxpayers stand to lose the $2.3B the Treasury paid to purchase preferred shares in CIT. In a statement this morning, Goldman Sachs insisted the $1B was not a 'windfall payment' but rather represents "the present value of the spread to be earned over the life of the facility."
- IMF's new role as G-20 admin. The cloudy relationship between the IMF and its shareholders took shape over the weekend. While managing director Dominique Strauss-Kahn would have liked the IMF to emerge as a global central bank, G-7 leaders in Istanbul - with broad support from other world leaders - moved to convert the IMF into the administrative arm of the G-20, which is emerging as the board of directors of the global economy. On Sunday, G-7 leaders instructed the IMF to prepare the framework for an "orderly and cooperative exit" from global fiscal and monetary stimulus.
- Brocade puts itself on the block. Brocade Communications (BRCD), which makes equipment that links computer networks to data-storage centers, has quietly put itself up for sale. H-P (HPQ), whose mounting rivalry with Cisco Systems (CSCO) has it scrambling to source parts for its ProCurve networking division, is a lead candidate to acquire Brocade. Other tire-kickers include Oracle (ORCL). Brocade's market cap as of Friday was $3.2B.
- BofA readies for sudden departure. Sources say Bank of America's (BAC) board will settle this week on an emergency CEO in case legal turmoil forces Ken Lewis to step down before year-end. The TARP IG report due out today (see above) will also say that while government officials didn't pressure BofA to hide Merrill's losses from shareholders, it was under pressure to finish the deal, and that its lawyers decided the bank did not need to disclose losses mid-stream.
- Euro-zone service sector moves back to growth. The euro-zone services sector returned to growth for the first time in 16 months, with Markit's PMI index climbing to a surprisingly strong 50.9 (consensus: 50.6) from 49.9 in August. France's growth was most pronounced, climbing to 52.2 from 49.3. Business sentiment regarding activity in one year's time hit a 44-month high. "Although the rise was only very modest," Markit chief economist Chris Williamson said, "signs that the recovery has spread from manufacturing to services add to hopes that the upturn can become self-sustaining." Meanwhile, euro area retail sales (.pdf) dropped 0.2% in August from July, the 15th straight month of decline, and 2.6% weaker than a year ago.
- Finra concedes partial blame for Ponzi schemes. Finra, the U.S. brokerage industry’s main regulator, is inadequately trained to investigate fraud allegations, according to an internal probe (.pdf) of the Madoff and Stanford scandals. Finra's report concedes regulatory lapses that allowed the giant Ponzi schemes to proliferate undetected weren't confined to the SEC (which earlier issued its own damning findings (.pdf)), noting it received credible tips from at least five sources, including the SEC. Somewhat troubling is the notion that current SEC chief Mary Schapiro was head honcho at Finra during the period in question.
- HSBC chief fires warning shot. HSBC (HBC) CEO Michael Geoghegan is convinced we're headed for a W-shaped recovery and a second downturn, and says he's in no rush to expand. "I'm not as convinced we're through the worst as others are," he told the FT in an interview. Meanwhile, HSBC's head of global private banking said this morning the bank has mulled ING's (ING) private banking assets for sale in Asia and Switzerland, noting such businesses almost never come up for sale. On Sunday, HSBC sold its NYC headquarters for $330M in cash to Israeli businessman Nochi Dankner.
- U.S. group enters race for Volvo. A U.S.-led consortium is pitting itself against China's Geely Automotive to buy Ford's (F) Swedish car maker, Volvo (VOLVY.PK). The group is led by former Ford director and turnaround specialist Michael Dingman and former Ford and Chrysler executive Shamel Rushwin, who have lined up financing. While the U.S. consortium is reportedly offering much less than Geely, both involve similar plans to invest more than $3B in Volvo.
- Greenspan sees more job losses. Calling Friday's September job report "pretty awful," former Fed chairman Alan Greenspan warned that the U.S. unemployment rate could "penetrate the 10% barrier and stay there for a while before we start down." Greenspan said he was especially worried that Friday's report, which put unemployment at 9.8%, showed an increasing number of Americans unemployed for more than six months – up by 450,000 at 5.4M.
Today's Markets
Asia markets were mixed Monday, Europe is marginally higher, and futures are up about half a point from Friday's close.
- Asia: Nikkei -0.59% to 9,674. Hang Seng +0.26% to 20,429. BSE -1.56% to 16,866.
- Europe at midday: London +0.05%. Paris +0.2%. Frankfurt +0.3%.
- Futures: Dow +0.45% to 9477. S&P +0.6% to 1027.50. Nasdaq +0.6%. Crude -0.9% to $69.30. Gold +0.1% at $1,005. Euro +0.3% vs. dollar. Yen -0.7%. 30-year Tsy +0.28%. 10-year +0.10%.
Monday's Economic Calendar
- 10:00 ISM Non-Manufacturing Index
10:00 Employment Trends Index
10:00 $50B, 70-Day TAF Auction
1:00 PM Results of $7B, 10-year TIPS auction
6:30 PM Fed's Dudley speaks
6:30 PM Fed's Fisher speaks - Notable earnings before Monday's open: RPM
- Notable earnings after Monday's close: MOS
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World leaders may be able to talk the talk, but they know precious little about money and financial matters; in fact, it is partly because of this that we are in the mess that we are in now. The sooner politicians leave business alone to sort things out without political over and undertones getting in to derail recovery, the better it will be for everyone (except maybe the politicians who, if they can't talk and make useless and counterproductive laws, fall strangely silent and become somewhat superfluous.)
Oh, we have no choice, I forgot.
Because: 1) We're not smart enough to understand the truth. 2) We don't really exist...not important enough to be considered. 3) We can't take the truth. 4) You believe your agenda so thoroughly that you know that it's OK tolie to forward your agenda..... because the other side just doesn't understand the moral issue. or 5) You are a politician or associated with politics; thus you have no moral compass and your values are based on doing what is best for those you are beholden or loyal to, such as those who give you money to be elected or those who will give you a job when you leave your political position.
The average citizen has had no choice in the matter; Wall Street and Washington don't listen and don't really care.
The average citizen will vote with their money; they will stash it, save it, take it out of "too big to fail" banks, and maybe - decide to follow the example of government and banks and insurance companies and spend what they don't have using credit cards and other forms of debt.
That is the real moral hazard we have not dealt with.
Well folks the end of the year is nigh and so is the end of cap and trade and healthcare reform government option.
Roubini Sees Stock Declines as Soros Warns on Economy
By Shamim Adam and Francine Lacqua
Oct. 5 (Bloomberg) -- New York University Professor Nouriel Roubini said stock markets may drop and billionaire George Soros warned the “bankrupt” U.S. banking system will hamper its economy, highlighting doubts about the sustainability of the global recovery.
“Markets have gone up too much, too soon, too fast,” Roubini, who accurately predicted the financial crisis, said in an interview in Istanbul on Oct. 3. U.S. stocks may suffer a “major decline” after climbing to the highest levels in almost a year two weeks ago, according to technical analyst Robert Prechter, founder of Elliott Wave International Inc.
Stocks have surged around the world in the past six months as evidence mounts that the economy is emerging from its deepest recession since the 1930s. The Standard & Poor’s 500 Index has soared 51 percent from a 12-year low in March while Europe’s Dow Jones Stoxx 600 is up 48 percent. The euphoria contrasts with warnings from policy makers and investors like Soros, who said today that the U.S. economic recovery will be “very slow.”
U.S. consumers are “overdebted” and the country’s banking system has been “basically bankrupt,” Soros said in Istanbul today. “The United States has a long way to go.”
Group of Seven finance ministers and central bankers also struck a cautious tone after meeting on the shores of the Bosporus over the weekend, saying the prospects for growth “remain fragile.”
‘Barely Recovering’
“The real economy is barely recovering while markets are going this way,” Roubini said. “I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U-shaped. That might be in the fourth quarter or the first quarter of next year.”
U.S. and European stocks gained today after reports showed service industries expanded on both sides of the Atlantic.
“Stocks are very overvalued,” Prechter, who advised betting against U.S. equities three months before the market peaked in October 2007, said in an Oct. 1 telephone interview. “Stocks peaked in September and are back in a bear market.”
The S&P 500 will probably fall “substantially below” 676.53, the 12-year low reached on March 9, he said. His projection implies a drop of more than 34 percent from last week’s close of 1025.21. It rose to 1031.77 at 10:05 a.m. in New York.
Valuations
Gains in the index have pushed valuations to more than 19 times reported operating profits from the past year, data compiled by Bloomberg show. That’s near the most expensive level since 2004.
U.S. stocks fell last week after manufacturing expanded less than anticipated and unemployment climbed to a 26-year high of 9.8 percent. In the 16-nation euro region, the jobless rate is at 9.6 percent, the highest in more than a decade.
HSBC Holdings Plc Chief Executive Officer Michael Geoghegan fears there will be a second global economic slump, the Financial Times reported today, citing an interview. Geoghegan forecast a W-shaped recovery and said the “reality is that profits will be quite reduced,” the newspaper reported.
The International Monetary Fund predicts the global economy will expand 3.1 percent in 2010, led by growth in Asia, after a 1.1 percent contraction this year. That is still “anemic” and “very weak,” Roubini said.
If growth doesn’t rebound rapidly, “eventually markets are going to flatten out and correct to valuations that are justified,” he said. “I see a growing gap between what markets are doing and the weaker real economic activities.”
Creating Bubbles
Stocks will continue to advance, according to Byron Wien, vice chairman of Blackstone Group LP. The S&P 500 is poised for its biggest fourth-quarter rally in a decade as the economy recovers and earnings exceed analysts’ forecasts, Wien said in an interview on Sept. 28.
The global equity rally has added about $20.1 trillion to the value of stocks worldwide since this year’s low on March 9. Governments have poured about $2 trillion of stimulus into the global economy while central banks have cut interest rates to close to zero in efforts to revive growth.
“In the short run we need monetary and fiscal stimulus to avoid another tipping point and to avoid deflation, but now this easy money has already started to create asset bubbles in equities, commodities, credit and emerging markets,” Roubini said. “For the sake of achieving growth stability again and avoiding deflation, we may be planting the seeds of the next cycle of financial instability.”
To contact the reporters on this story: Shamim Adam in Istanbul at sadam2@bloomberg.net; Francine Lacqua in Istanbul at flacqua@bloomberg.net
Last Updated: October 5, 2009 10:27 EDT
HSBC Holdings Plc Chief Executive Officer Michael Geoghegan fears there will be a second global economic slump, the Financial Times reported today, citing an interview. Geoghegan forecast a W-shaped recovery and said the “reality is that profits will be quite reduced,” the newspaper reported.
www.bloomberg.com/apps...