Lehman Sues Japan Firm, Claiming $350 Million Fraud (WSJ)
There's a million ways to lose money. Here's one of the more interesting ones we've been paying attention to. Lehman claims that employees of a Japanese firm fraudulently bilked Lehman out of $350 million. Their method of action: using official company documentation to suggest that it was behind a hospital refurbishment funding project. Turns out the Japanese company Marubeni Corp had no idea about it. So now Lehman is suing for its cash back. Whether they get it back or not, you have to figure that Lehman's counterparty (so to speak) in this fraud, must've had a damn good idea about how this whole process works to pull something like this off.
Citizen Huff (NYT)The redhot Huffington Post continues to make the media rounds, jumping form the New Yorker to the New York Times for its latest glowing profile. Actually, it started even earlier when some (possibly dubious) numbers came out that the site was bigger than Drudge. It helps that it's election season and there's an added hook to write about a politically-oriented site. But really. Financially, the site expects revenues between $6-$10 million this year, on what sounds like breakeven profits. Oh, and they found some guy to say it was worth $200 million.
Aloha Airlines Halting Passenger Service (AP)We've long been in the "more bankruptcies" camp when it comes to airlines, hoping that they'll lead to more gates/opportunities for interesting upstarts. That being said, seeing as we're not too big on the intra-Hawaii island-hopping scene, it's hard to get real excited about the end of Aloha Airlines. After 60 years, the company recently declared bankruptcy, and now it's shutting down operations for good.
HUD Secretary Expected to Quit (WSJ)There's something about HUD secretaries. Always seemingly getting up to no good. Yesterday we couldn't have named our current one, but today we know his name is Alphonso Jackson and he's expected to quit amidst some vague allegations of wrongdoing. The Journal describes this as a blow to Bush's attempt to fix the housing mess. Eh, somehow we doubt that this position isn't so crucial to the situation.
UBS Falls After Reports It May Have to Raise Capital (Bloomberg)Having already raised about $13 billion earlier this year, UBS may have to double dip in the guacamole. As it gets set to report another wave of writedowns, analysts say it will have to go back and raise more money, possibly as much as another $15 billion. Overnight, shares fell around 4 percent on the report.
Monday, March 31, 2008
Sunday, March 30, 2008
Will Euro Rise to 1.6000 Against Dollar This Week?
People calling for a rally of the US dollar again got disappointed as USD bears got aggressive with every piece of USD-negative economic data that came in. The Reuters/University of Michigan index of consumer sentiment fell to a 16-year low, and consumer spending rose 0.1% in February, the least in more than a year, after a 0.4% gain in January. Weakness in the greenback is most prominent against the Euro; EUR/USD gained the most in more than two years last week, rallying more than 500 pips, with most gains made over last Tuesday and Wednesday. If EUR/USD breaks above its all-time high of 1.5900, it could next target 1.5950, 1.5990-1.6000.
Contraction of US Economy?
An increasing number of economists are predicting a US recession as job, retail sales and manufacturing data have worsened this year. Theoretically, to qualify as a recession, the economy has to shrink for six straight months. Traders are pricing in a 52% chance the Fed will cut its target rate by a quarter-point to 2% at its meeting on April 30, and the remaining bets are for a half-point cut.
There will be many major economic releases this week, including US ISM manufacturing on Tuesday and US non-farm payrolls on Friday.
Contraction of US Economy?
An increasing number of economists are predicting a US recession as job, retail sales and manufacturing data have worsened this year. Theoretically, to qualify as a recession, the economy has to shrink for six straight months. Traders are pricing in a 52% chance the Fed will cut its target rate by a quarter-point to 2% at its meeting on April 30, and the remaining bets are for a half-point cut.
There will be many major economic releases this week, including US ISM manufacturing on Tuesday and US non-farm payrolls on Friday.
Saturday, March 29, 2008
Forget April Fools' Day: Next Week's Data is No Joke
Next Tuesday may be April Fools' Day, but the data due out during the week will be no joke--especially if it’s as bad as expected.There will be two key points for the week: Wednesday’s Congressional testimony by Federal Reserve Chairman Ben Bernanke before the Joint Economic Committee and the first labor report of the month released Friday. Both events are highly predictable.Bernanke’s testimony will likely echo the Fedspeak remarks we’ve heard in the two weeks since the Federal Open Market Committee’s March 18 meeting. This was the meeting at which the Fed further reduced the target Fed Funds rate (the interest rate banks charge each other for overnight loans used to maintain required reserves) to the lowest level since December 2004 -- when rates were on the way up.
The Federal Reserve hasn’t exactly been idling since then. It engineered the acquisition of threatened investment banking firm Bear Stearns by commercial banking giant JPMorgan Chase and then added new arrows to its quiver in its uphill struggle to contain damage in the financial services sector from the mortgage meltdown.Bernanke’s testimony comes against the backdrop of a new survey by the Pew Research Center, which found Americans have grown steadily more negative about the national economy over the past three months. According to the survey, only 11% of the public views the economy as "excellent" or "good," compared with 17% in early February, and 26% in January. The survey's results show people's view of the economy is at lows it saw during the recession of the early 1990s. "In August 1993, 10% of Americans rated the economy as excellent or good in a Gallup survey,” the survey found.However, Bernanke might be able to bask in anonymity. According to the survey, most Americans don't know who he is: 56% say they have not heard of him or do not know enough about him to offer an opinion. Those who are familiar enough with Bernanke to offer an opinion of him are divided: about a quarter (24%) hold a favorable, while 20% offer an unfavorable rating. Bernanke did somewhat better with those who know about recent investment bank problems. Among those who know a lot about the situation, 37% rated him favorably and 40% did not offer an opinion.If Bernanke slinks in under the radar, Friday’s employment report won’t. The headline numbers such as the unemployment rate and the change in payroll jobs will, by definition, draw the most attention -- but the report also contains nuggets suggesting the future direction of the economy.Joel Naroff, chief economist at Commerce Bank, suggested one nugget could come from the diffusion index in the employment report. The index, Naroff said, shows how broadly-based the changes in jobs are and reflects the breadth of employment. The index--on the last page of the report --is a series of tables noting the percentage of industries that have increased their payrolls in the last month, three months, six months and the last twelve months. Looking at the percentage changes at different time frames provides insight about trends in layoffs and hiring generally and, since there are two sets of indexes-- manufacturing and all private sector payrolls--how widespread the changes are.Another under-the-radar number, according to David Resler, chief economist at Nomura, is the labor force participation rate. Resler noted the unemployment rate improved in February even though job creation was negative for the second month in a row because the labor force--the sum of individuals employed and unemployed (only those actively looking for work are considered “unemployed”) -- declined.Confused by this? Here's a simple example. Imagine there were only 11 people over the age of 16 (which is the age cut-off used by the Bureau of Labor Statistics in developing its employment report). Of the 11, two are unemployed and nine are employed, producing an unemployment rate of 18%, or two divided by 11. As the labor market weakens, one of the two who had been unemployed stops looking, reducing the labor force to 10. The unemployment rate would be cut to 10%, or one divided by ten.The composition of the labor force too, Resler suggested, could offer glimpses into the future. He suggested the weakening labor market could push older workers into retirement, with the composition force changing.We’ll see Friday.
The Federal Reserve hasn’t exactly been idling since then. It engineered the acquisition of threatened investment banking firm Bear Stearns by commercial banking giant JPMorgan Chase and then added new arrows to its quiver in its uphill struggle to contain damage in the financial services sector from the mortgage meltdown.Bernanke’s testimony comes against the backdrop of a new survey by the Pew Research Center, which found Americans have grown steadily more negative about the national economy over the past three months. According to the survey, only 11% of the public views the economy as "excellent" or "good," compared with 17% in early February, and 26% in January. The survey's results show people's view of the economy is at lows it saw during the recession of the early 1990s. "In August 1993, 10% of Americans rated the economy as excellent or good in a Gallup survey,” the survey found.However, Bernanke might be able to bask in anonymity. According to the survey, most Americans don't know who he is: 56% say they have not heard of him or do not know enough about him to offer an opinion. Those who are familiar enough with Bernanke to offer an opinion of him are divided: about a quarter (24%) hold a favorable, while 20% offer an unfavorable rating. Bernanke did somewhat better with those who know about recent investment bank problems. Among those who know a lot about the situation, 37% rated him favorably and 40% did not offer an opinion.If Bernanke slinks in under the radar, Friday’s employment report won’t. The headline numbers such as the unemployment rate and the change in payroll jobs will, by definition, draw the most attention -- but the report also contains nuggets suggesting the future direction of the economy.Joel Naroff, chief economist at Commerce Bank, suggested one nugget could come from the diffusion index in the employment report. The index, Naroff said, shows how broadly-based the changes in jobs are and reflects the breadth of employment. The index--on the last page of the report --is a series of tables noting the percentage of industries that have increased their payrolls in the last month, three months, six months and the last twelve months. Looking at the percentage changes at different time frames provides insight about trends in layoffs and hiring generally and, since there are two sets of indexes-- manufacturing and all private sector payrolls--how widespread the changes are.Another under-the-radar number, according to David Resler, chief economist at Nomura, is the labor force participation rate. Resler noted the unemployment rate improved in February even though job creation was negative for the second month in a row because the labor force--the sum of individuals employed and unemployed (only those actively looking for work are considered “unemployed”) -- declined.Confused by this? Here's a simple example. Imagine there were only 11 people over the age of 16 (which is the age cut-off used by the Bureau of Labor Statistics in developing its employment report). Of the 11, two are unemployed and nine are employed, producing an unemployment rate of 18%, or two divided by 11. As the labor market weakens, one of the two who had been unemployed stops looking, reducing the labor force to 10. The unemployment rate would be cut to 10%, or one divided by ten.The composition of the labor force too, Resler suggested, could offer glimpses into the future. He suggested the weakening labor market could push older workers into retirement, with the composition force changing.We’ll see Friday.
Friday, March 28, 2008
Plosser Speaks Up Against Aggressive Rate Cut
The US dollar is getting some prop against major currencies on Friday. Federal Reserve Bank of Philadelphia President Charles Plosser said at a conference in Cape Town today the Fed’s 75 basis-point rate reduction this month was too much, and it risks losing its reputation of quelling inflation. Plosser said, “A less aggressive cut would have been more appropriate.” The Fed’s reputation for keeping inflation low and stable “can be lost if we do not continue to act in a way that is consistent with it,” he said. He also said, “We’ve done a lot to support economic growth. We need to pay attention to inflation.” Plosser is a well-known inflation hawk, and he, together with Dallas Fed President Richard Fisher, dissented the FOMC decision to cut the Fed’s main lending rate to 2.25% on March 18.
US Economic Data
The final version of the Reuters/University of Michigan consumer sentiment survey for March saw the overall index decrease to 69.5, as widely expected, from 70.8 in February. The preliminary March reading was 70.5. This was the lowest reading since 1992. Another report today shows US personal spending for February increased by 0.1% compared to the month before. January spending had gone up an unrevised 0.4%. Even though the data is better than the 0.1% drop expected, the performance in February was the weakest since a 0.1% dip in September 2006. Meanwhile, the PCE price index excluding food and energy, climbed 2% on an annual pace in February. Core inflation also rose 2% in January as well.
Forex Trading
Euro bulls are hesitant in pushing the Euro higher vs the US dollar before the weekend as rumors of European banks having huge writedowns are making rounds, and the currency pair trades between 1.5750-1.5850 most of the time. USD/CHF faces resistance around 1.0000.
US Economic Data
The final version of the Reuters/University of Michigan consumer sentiment survey for March saw the overall index decrease to 69.5, as widely expected, from 70.8 in February. The preliminary March reading was 70.5. This was the lowest reading since 1992. Another report today shows US personal spending for February increased by 0.1% compared to the month before. January spending had gone up an unrevised 0.4%. Even though the data is better than the 0.1% drop expected, the performance in February was the weakest since a 0.1% dip in September 2006. Meanwhile, the PCE price index excluding food and energy, climbed 2% on an annual pace in February. Core inflation also rose 2% in January as well.
Forex Trading
Euro bulls are hesitant in pushing the Euro higher vs the US dollar before the weekend as rumors of European banks having huge writedowns are making rounds, and the currency pair trades between 1.5750-1.5850 most of the time. USD/CHF faces resistance around 1.0000.
Opening Bell: 3.28.08
Judge says ex-Bear exec can't join Morgan Stanley (Reuters) A judge has ruled that an ex-Bear exec can't take up work at Morgan Stanley, because, argued Bear itself, the just-resigned executive hadn't given the proper 90 days notice. The 20-year old vet just quit Bear 10 days ago, so the question seemed to be: in times of extreme chaos and uncertainty, do the normal rules about this apply? Apparently in this guy's case, the answer was yes.
Citi Continues Leadership Overhaul (WSJ)New hire at Citi: Terri Dial, who currently runs Lloyd's retail banking unit in the UK, is expected to be brought on the consumer business under Vikram Pandit. More broadly, the company is expected to break down lines on a more regional basis, allowing its operations to be more in tune with the local culture and business climate.
Neeleman to leave JetBlue for Brazilian start-up? (Today in the Sky)For some reason, this rumor is getting reignited, even though it's old: jetBlue founder and erstwhile CEO Jeff Neeleman may go to Brazil and start a new airline there. Presumably something like the jetBlue of Brazil. So far there's nothing official, though apparently he is discussing his future as chairman of jetBlue -- obviously if he jetted down to Brazil to launch a new airline, he probably wouldn't have time to attend many board meetings. Anyway, we're all for it. We've heard the civil aviation sector in Brazil could use some improvement...
Is China Really No. 1 in Internet Users? (The Numbers Guy)Maybe not. Carl Bialik, as he's prone to do, is able to poke a few holes in the side of the can, so that some light can get through. Some issues: the US survey only surveyed people with landline, which, given the demographics and all has to be skewing. Then there are people who have internet access, but who haven't used it in the last month (though really, that can't account for two many people). And then there's the fact that stats out of China can only be relied on so much -- sort of like stats for health and literacy out of Cuba. You're going to believe those?
Weber Says ECB Will Raise Interest Rates `If Needed' (Bloomberg)Those stalwart inflation fighters at the ECB won't be changing their tune any time soon. With most of the world still preoccupied about liquidity and cash availability and stuff like that, an ECB member is still warning that rate increases could be coming if inflation looks like it's becoming an issue. Yeah, they really believe int his price stability thing.
Citi Continues Leadership Overhaul (WSJ)New hire at Citi: Terri Dial, who currently runs Lloyd's retail banking unit in the UK, is expected to be brought on the consumer business under Vikram Pandit. More broadly, the company is expected to break down lines on a more regional basis, allowing its operations to be more in tune with the local culture and business climate.
Neeleman to leave JetBlue for Brazilian start-up? (Today in the Sky)For some reason, this rumor is getting reignited, even though it's old: jetBlue founder and erstwhile CEO Jeff Neeleman may go to Brazil and start a new airline there. Presumably something like the jetBlue of Brazil. So far there's nothing official, though apparently he is discussing his future as chairman of jetBlue -- obviously if he jetted down to Brazil to launch a new airline, he probably wouldn't have time to attend many board meetings. Anyway, we're all for it. We've heard the civil aviation sector in Brazil could use some improvement...
Is China Really No. 1 in Internet Users? (The Numbers Guy)Maybe not. Carl Bialik, as he's prone to do, is able to poke a few holes in the side of the can, so that some light can get through. Some issues: the US survey only surveyed people with landline, which, given the demographics and all has to be skewing. Then there are people who have internet access, but who haven't used it in the last month (though really, that can't account for two many people). And then there's the fact that stats out of China can only be relied on so much -- sort of like stats for health and literacy out of Cuba. You're going to believe those?
Weber Says ECB Will Raise Interest Rates `If Needed' (Bloomberg)Those stalwart inflation fighters at the ECB won't be changing their tune any time soon. With most of the world still preoccupied about liquidity and cash availability and stuff like that, an ECB member is still warning that rate increases could be coming if inflation looks like it's becoming an issue. Yeah, they really believe int his price stability thing.
Thursday, March 27, 2008
Whitney Sends Bank Stocks Tumbling
It seems that one of the most influential analysts in the current market conditions is Meredith Whitney from Oppenheimer. Yesterday she slashed her estimates for Citigroup (C: 21.79 -0.26 -1.18%) saying it could suffer write-downs totaling $13.2 billion, sending its stocks down, and today she sent Merrill Lynch (MER: 41.90 -2.52 -5.67%) and UBS (UBS: 29.13 -0.03 -0.10%) stocks plunging by saying that they could suffer a loss this quarter and have massive write-downs of $6 billion and $11.1 billion, respectively.
The fact that oil prices have risen above $107 a barrel and the lower-than-expected results from Oracle (ORCL: 19.43 -1.51 -7.21%) haven’t given the stock markets much cheer either. In these market conditions, it seems an analyst’s best bet is to look at worst-case scenarios as many of those are coming true. All of this will be great news for those who, like Jim Rogers, were short financials and long commodities.
On a different note, the Clear Channel deal may not be dead after all. Clear Channel Communications (CCU: 29.60 +2.68 +9.96%), the US radio operator, said on Thursday it had won a ruling from a Texas judge that may advance its efforts to force banks to finance a $20 billion buyout by private equity firms Bain Capital Partners and Thomas H Lee Partners who filed the lawsuit. A group of six banks, led by Citigroup was supposed lend more than $22 billion for the buyout, but apparently backed out after credit conditions worsened. Clear Channel shares rose today, erasing its part of its loss of 17.5% on Wednesday.
The fact that oil prices have risen above $107 a barrel and the lower-than-expected results from Oracle (ORCL: 19.43 -1.51 -7.21%) haven’t given the stock markets much cheer either. In these market conditions, it seems an analyst’s best bet is to look at worst-case scenarios as many of those are coming true. All of this will be great news for those who, like Jim Rogers, were short financials and long commodities.
On a different note, the Clear Channel deal may not be dead after all. Clear Channel Communications (CCU: 29.60 +2.68 +9.96%), the US radio operator, said on Thursday it had won a ruling from a Texas judge that may advance its efforts to force banks to finance a $20 billion buyout by private equity firms Bain Capital Partners and Thomas H Lee Partners who filed the lawsuit. A group of six banks, led by Citigroup was supposed lend more than $22 billion for the buyout, but apparently backed out after credit conditions worsened. Clear Channel shares rose today, erasing its part of its loss of 17.5% on Wednesday.
Opening Bell: 3.27.08
A Decade Later, John Meriwether Must Scramble Again (WSJ) The recent struggles at John Meriwether's (ex-LTCM) have been documented elsewhere, though the WSJ brings everything up to speed. His big bond portfolio is down a cool 28 percent this year, though more significantly they're dealing with a potential wave of redemptions that they're trying to stem. There's a lesson here. It's not that Meriwether is a bad money manager. And it's not that he's unlucky. Again, same. It comes back to the old, old cliche: that you're better off losing a ton of money in one of the biggest high profile fund collapses of all time then in just a moderately bad one. Cause any fool can lose $100 million of OPM.
Prudent Bear's Approach Delivers Payoff (WSJ)Amazing interview with David Tice, the longtime manager of the short-oriented 'Prudent Bear' fund, which has been doing well of late. Tice has been a bear for a long, long, long time. Well before anyone coined the term .com bubble. If you ever catch him on CNBC, he just looks like a bear. Very dour. Anyway, the interview: first amazing part is that he apparently went on a date recently (of course he's not married) and when he described his macro view to his date, the date was ruined: "You can almost feel the energy go from the room." Awesome. Imagine going on a date with the guy would probably be as fun as going on a date with Ralph Nader. The second best part: where he says down at the end that he really wants to get bullish again. Yeah. Right. No. Way. The dude likes being the negative guy. The contrarian who talks about bubbles everywhere as far as the eye can see. I'll be shocked if we live to see the day he turns positive.
GE and Santander Reach Preliminary AgreementA little spit swapping from GE and Banco Santander, based in Spain. The latter will acquire GE Money businesses in Germany, Finland and Austria and Its Card and Auto Financing Businesses in the UK. The former will acquire Interbanca, which Santandar got through acquiring ABN. The transactions are valued around 1 billion EUR.
Clear Channel Communications Comments on Temporary Restraining Order Granted in Merger Case by Texas JudgeClear Channel said in a press release this morning that a Texas judge has granted a "temporary restraining order" against the banks, who are looking to walk away from their funding commitments. No, the banks aren't stalking, they just want to save a few billion. From the announcement: "We are pleased that the Banks and the Purchasers will now be able to move quickly to complete the loan documents and fund the Merger." Somehow we doubt it will move that quickly.
Prudent Bear's Approach Delivers Payoff (WSJ)Amazing interview with David Tice, the longtime manager of the short-oriented 'Prudent Bear' fund, which has been doing well of late. Tice has been a bear for a long, long, long time. Well before anyone coined the term .com bubble. If you ever catch him on CNBC, he just looks like a bear. Very dour. Anyway, the interview: first amazing part is that he apparently went on a date recently (of course he's not married) and when he described his macro view to his date, the date was ruined: "You can almost feel the energy go from the room." Awesome. Imagine going on a date with the guy would probably be as fun as going on a date with Ralph Nader. The second best part: where he says down at the end that he really wants to get bullish again. Yeah. Right. No. Way. The dude likes being the negative guy. The contrarian who talks about bubbles everywhere as far as the eye can see. I'll be shocked if we live to see the day he turns positive.
GE and Santander Reach Preliminary AgreementA little spit swapping from GE and Banco Santander, based in Spain. The latter will acquire GE Money businesses in Germany, Finland and Austria and Its Card and Auto Financing Businesses in the UK. The former will acquire Interbanca, which Santandar got through acquiring ABN. The transactions are valued around 1 billion EUR.
Clear Channel Communications Comments on Temporary Restraining Order Granted in Merger Case by Texas JudgeClear Channel said in a press release this morning that a Texas judge has granted a "temporary restraining order" against the banks, who are looking to walk away from their funding commitments. No, the banks aren't stalking, they just want to save a few billion. From the announcement: "We are pleased that the Banks and the Purchasers will now be able to move quickly to complete the loan documents and fund the Merger." Somehow we doubt it will move that quickly.
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