Wall Street Breakfast: Must-Know News

• Bunge and Corn Products to Combine. Bunge (BG) agreed to acquire corn syrup maker Corn Products (CPO) for $4.4B in stock - a 31% premium. CPO gives Bunge a presence in nearly every stage of the corn-value chain. Separately, Bunge (BG) raised its 2008 EPS forecast to $9.35-9.65 from $7.10-7.40. Bunge remains #3 global agribusiness company by revenue, behind Cargill and Archer Daniels Midland (ADM), but it gains a much stronger corn presence. Corn Products shareholders will own 21% of Bunge.
• 6,500 could see pink at Citi. Citigroup (C) will make aggressive layoffs in its investment-banking unit this week, cutting up to 10% of its staff, sources say. Unlike previous cuts, this round will include dozens of senior execs.
• Saudi Arabia boosts oil production; markets yawn. Saudi Arabia said it will bump its oil output by 200K barrels/day to 9.7M in July, and is ready to pump even more oil if needed. King Abdullah says he's committed to "reasonable" oil prices. Some, such as Austrian Economy Minister Martin Bartenstein, say 200K more oil/day won't do the trick, and want Saudi Arabia to open the taps. Others, like OPEC's Khelil, blame speculators - not a lack of supply. In early trading, the oil markets have been unimpressed with Saudi Arabia's pledge: oil is up 0.98% to $136.65.
• Citi bond writing drops out of sight. Citigroup (C), once a powerhouse of the international bond markets, dropped out of the European bond underwriters' top-10 list for the first time in a decade. "It’s a little early to say how this is going to affect them longer term, but once you’re out of the top it starts becoming more difficult to pick up new mandates," a senior debt banker said.
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• Allstate gets serious about RBSi bid. Sources say Allstate (ALL) hired Lehman (LEH) to head up its bid for Royal Bank of Scotland's (RBS) £6B insurance arm. The other bidders: Allianz (AZ), Travelers (TRV) and Zurich.
• BCE deal to proceed. The Canada Supreme Court overturned the Quebec Court of Appeal's decision to block the C$34B LBO of BCE (BCE). Lawyer James Morton called the decision a victory for shareholders; holders of BCE's debt had tried to block the deal on grounds it decreased the value of their bonds. "Shareholders are the boss and remain the boss," Morton said. "Now companies and boards of directors, particularly publicly traded companies, will know what the rules are and know how to go ahead." Lenders Toronto Dominion Bank (TD), Citigroup (C), Deutsche Bank (DB) and Royal Bank of Scotland (RBS) could still try to revive efforts to renegotiate the deal's terms.
• Monoline downgrades tighten noose. Moody's five-level downgrade will force bond insurer MBIA (MBI) to use $7.4B of its $15.2B in assets for payouts and collateral postings, it said. The market now sees bond insurers as "exceedingly likely to default in the next few years," Deutsche Bank's co-head of credit trading Boaz Weinstein says.
• SEC chief under fire. SEC chairman Christopher Cox in facing criticism for not playing a more visible role during and after the Bear Stearns breakdown. Some industry watchers say the SEC should have pressured Bear Stearns to raise more capital before things became critical. "If Bear Stearns had had enough capital there never would have been a run on the bank -- because there would have been confidence in the system," former SEC chief accountant Lynn Turner said.
• Oil speculation closely eyed. Speculation now accounts for 70% of all U.S. oil trading, up from 37% in 2000. A Congressional hearing is scheduled for today to discuss the increasing role speculators and investors are playing in the oil futures market.
• Cash-strapped banks running out of options. Investors are tired of buying bank share issues only to see prices drop further. In recent weeks, banks are encountering increasing reluctance by investors to participate in capital raising. "The window for capital-raising is closing," portfolio manager Brad Evans says. "Investing in a bank right now means investing in a large portfolio of loans that are essentially a black box." Banks left short of capital, with a dearth of potential suitors, may come running to the FDIC en masse.
• Ultra Smooth fails to catch on. Altria (MO) is dropping Marlboro Ultra Smooth, which uses high-tech filters to reduce carcinogens, after the cigarettes failed to catch on. Executives are trying in vain to find new products to stem falling sales, which they see declining at 2.5-3% in coming years.
• Inflation worries German businesses. German business confidence fell to a worse-than-expected 101.3, its lowest in two years, over worries about high oil and broad inflation.

Today's Markets

• Asia markets were mainly lower Monday. Nikkei -0.61% to 13,857. Hang Seng +0.03% to 22,753. Shanghai -2.52% to 2,760. BSE -1.31% to 14,381.
• In Europe, markets are higher at midday. London +0.49%. Paris +0.24%. Frankfurt +0.46%.
• Futures are higher in the U.S. at 7:20 AM. Dow +0.3%. S&P +0.36%. Nasdaq +0.35%. Crude +0.93% to $136.60. Gold +0.09% to $904.50.

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Comments

[nukldrager]

How does oil speculation affect the price at the pump?
Is the effect of speculation different than that of supply and demand?

[alphameister]

Speculation has no meaningful impact on the price at the pump. For every buyer of oil who is not willing to accept delivery of the physical commodity there is a seller who does not have oil to deliver. Speculation is a zero-sum betting game played around the underlying forces of supply and demand. But when a villain must be found for political purposes, speculators make an appealing target.

[Michael Levy]

10 Reasons Why Oil Price Speculation Requires a Change in the Rule of Law by Michael Levy

High oil prices that are governed by the commodity markets are in dire need of common sense law and order. When speculation and detrimental logic and reasoning take central command of human society, the results always turn out to be damaging to the majority, at the abundance of the few. The experts and speculators will argue we need free markets and any interference will take away free trade. Well, in many cases they are correct, however, when it comes to essential commodities of food and energy they are completely out of order. Here are a few reasons why essential commodity markets require new legislation.

1. There has been no shortage of gas at any filling station for the past 10 years yet prices are up 1200% because of futures trading going out more than eight years. Even the Saudi oil minister has recently stated the price of a barrel of oil should be no more than $70.00. Demand from China and India is still far less than that of the USA. The Chinese stock market is down 50% signifying a sharp slow down. This news still is not enough to stop the wild speculators hiking the oil prices.

2. When hurricanes hit Florida many gas stations are closed and there is a real shortage of gas for a few days. However, if a gas station increases its prices they will be prosecuted for price gauging. Therefore, if we take the experts argument that there is a shortage of oil then that still does not give anyone the right to profit from the shortage as this is deemed to be prices gauging. How can the USA governments have double standards and prosecute gas station owners who price gauge and not treat commodity markets in the same manner?

3. Oil is an essential commodity for every day living in the same way as water is an essential commodity. It makes no sense to trade water so why leave oil in the hands of anyone who wants to make a quick buck gambling on prices.

4. Pension and hedge fund managers have invested billions of dollars in oil futures. The futures markets are very volatile, thus, no place for pension funds to risk the money for people who trust them to build future wealth. The fiduciary duty of a pension fund manger is to find reasonable returns with low risk and the commodity markets is not that place.

5. If the price of oil was regulated between $40.00 - $80.00 a barrel, the price could go up and down on supply and demand. This would be fair to everyone, for even when supply was plentiful, the price would not drop below $40.00 which will still give a fair profit to most oil related industries. When oil is in short supply the price would be limited to a ceiling of $80.00 which is more acceptable to world economies.

6. There is a moral issue that greed cannot come before peoples basic needs ... No right-minded, ethical, principled government can allow starvation and financial ruin because of a system of trading that is completely out of control.

7. The price of a barrel of oil effects transport, food supply, industrial production and every part of modern day living. If terrorists wanted to devise a plan to destroy the world. economies what better way than finding a method to allow oil to trade at $140.00 a barrel. Why play a game that makes terrorists and anarchists happy.

8. Goodwill to all people is the credo every democratic country is built upon.$140.00 a barrel oil delivers no goodwill. It only brings hardship and political uneasiness.


9. Noble deeds and fair dealing is the hallmark of success for every truly prosperous person. Since the world is made-up from people, where are the noble deeds and fair dealing in the commodity pits.

10. We are all put on earth to help each other succeed in the pursuit of freedom, liberty and happiness. There is no freedom when people are slaves to greed. There are only liberty takers when oil trades over $80.00 a barrel. And finally financial hardship brings misery and discontent.

The time for change in essential commodity trading is now. To quote a few voices from the past...

“Experience demands that man is the only animal which devours his own kind, for I can apply no milder term to the general prey of the rich on the poor”_Thomas Jefferson

“For greed all nature is too little.”_Seneca

“It is greed to do all the talking but not to want to listen at all” _ Democritus

“He who is greedy is always in want.” _Horace

[KellyLieberman]

Yes, and tell that to the majority of Republican voters whose only answer when asked "WHY are you still a Republican?" gives the answer, "They are better for business."
Ha!
It is the most absurd thing I have ever heard! Is $4-5 a gallon gas, the sub-prime mortgage mess, war in Iraq etc... etc... helping your financial statement? It isn't if you are the average midddle class American. If you are a Republican, in on the pillage and plunder of America, you have made your money or are having your final gasps of financial orgasm in the futures market...
I suppose once again the Democrats will have to roll in and do the heavy lifting to get the economy righted....

[[e-mail]]

Idealism. Unreal and impractical- too bad, but true!

[flatman]

So Kelly - if Wall street and the republicans are so tightly interwoven - why did the senior wall streeters contribute so much to Hillary and Barrack??

[notsosmart]

not a thing learned from enron.im not a communist or socialist but arealist.greed & lack of ethics have become the backbone of capitalism.

[Farmer Dave]

Big business contributes 14 times as much to Democrats as it does to Republican politicians. Look at what Sen. Shumer and Dodd did to the attempt at closing a tax loop-hole which allowed hedge fund traders to avoid paying 50 billion in personal income taxes in 2007. The American people are so out of touch. We need to reign in corrupt politicians and greedy corporate executives before our democratic society is completely destroyed.

[nScout]

Why is it that governments did't monitor and regulate the wall street speculators and their "subprimes". Why is it that governments do not monthly tax to oblivion the commodities and again wall street speculators on their unrealized and realized profits? Money and politics?

[dave mckay]

Michael Levy need to learn a) the difference between the cash price and the futures price, b) the spelling of the word "gouge", c) the unintended consequences of price controls, i.e. shortages, d) simple logic.

[TBill]

Considering the lack of knowledge of business, markets, and the economy displayed here, I am somewhat cheered by the fact that my competition in the stock market game is so weak. However, all these people vote, and have been electing congresscritters that seem determined to kill our golden goose and reduce us to third world status. More and more, international investing makes sense.

[GregoryY]

It is not the lack of knowledge, it is deliberate manipulation of a free and honest debate. These tactics have often been used by socio-fascists to manipulate public at the times of challenging economic conditions. The refusal of corrupt politicos to deal with energy policies for decades provides them with another attempt to destroy the system they parasite off. The oil state monopolies and pseudo-Greens are "the speculators" everybody is looking for. They have different motivations, but the common goal - the destruction of free markets.

[RightinSanFrancisco]

A comment for Ms Lieberman:
It is unfortunate that you move in such limited circles of Republicans. I would adjust your economic comment to say that, in general, Republicans represent the creators of wealth in the country, while Democrats are more interested in the social justice of how it is distributed - a worthy goal, but one must create the wealth in the first place. As a second general characteristic, Republicans believe that individuals can do a better job of creating opportunity and protecting individual liberty than the government can.

[jackooo]

Kelly
Lieberman
I thought the Democrats controlled congress. You know. The ones that said they would end the war last January when elected to congress.

[sbenard]

Mr. Levy keeps posting the same post throughout. It is pure spam, intended to tease people to his site, where he sells books. The books are as silly as his too-often-repeated posts.

[sbenard]

I'm neither Democrat nor Republican. I think they all stink. But Kelly Lieberman, if you really feel that way, why not move to Cuban or Venezuela, where you can enjoy fruits of your philosophies? Venezuela, thanks to a Marxist dictator, now has widespread food shortages in a country that used to provide for its own, and enjoys vast oil wealth. Socialism and its believer keep promoting its destructive philosophies again and again, despite its repeated failures.

[Roger GMcCorkle]

jackooo

You thought the Democrats controlled Congress? Thoughts and facts are two very different things. The Democrats have 50 seats in the Senate. Since Liberman caususes with the Democrates [ie spies for the Republicans] the Democrats get the chairmanships.

However it takes 60 votes in the Senate for anything to pass.
On this past Friday a bill to revise Medicare payments received:
Yeah 54
Nay 39
Not voting 7
Bill Failed.

Try to get your facts straight. Thinking does not make it so.

[jlounsbury59]

The solution: 300 Democrats in the house and 61 Democrats in the Senate. Then you can hold their fingers over the candle flame!

[edit5410]

Kelly Lieberman. High oil prices with the resulting high gasoline prices are the Republican way of redistributing wealth. More money to the rich few: oil co's, brokers, investment bankers, middle east countries, pension fund and hedge fund speculators, etc. AND taking it from the people least able to afford it, the worker. I guess you could call it a regressive tax, but it doesn't go to the govt. unless you call the huge political donations to Senators and Reps from the bankers, et. al "to the govt." I had hopes for Obama, but his flip on public financing of campaigns was a political expediency crusher. Same old s---, different horse.
Michael Levy,
Raise margin on oil contracts to 50%. Oil will drop to $70/barrel. Its immoral to keep margin here. The CFTC needs to act or be voted by Congress not to exist, which they can do. Of course, we are back to the millions that go from the bankers, et.al into the coffers of the Congress while the fast food burger server continues to get hosed at the pump. The CFTC is unlikely to act until the next administration OR the CFTC could, before Nov., raise the margin, oil drops to $70/barrel, gas to high $2's, and the McCain candidacy is saved. Karl Rove couldn't do better. Its like the swift boat ads, the Dukakis in the tank photo. Now, if Obama comes out soon with the idea of raising margin, Obama will get the credit and McCain will lose miserably. Kind of a Bush legacy result based on greed.

[KellyLieberman]

Sbenard-
Google: tent cities LA
You will find a YouTube video at what the BBC is reporting... I don't have to move to Cuba to disagree with Republican policy....or to find a vision of the 3rd world in our own backyard.