In short, in the process of acquiring Merrill, the Bank’s management misled its shareholders, the public, its board and its lawyers by concealing Merrill’s disastrous fourth quarter financial results in order to secure the shareholders’ uninformed approval of the deal. The Bank’s management then salvaged this potentially crippling situation by extracting billions in taxpayer bailouts by misleading the federal government. They did this, in part, by threatening federal officials that they would terminate the Merger Agreement based on a material adverse change—virtually the same material change they failed to disclosed to their shareholders prior to the vote. This action seeks redress under New York’s Martin Act for this conduct. - Andrew Cuomo
The Congressional debate over raising the debt ceiling by a ludicrous $1.9 trillion is now in session, with a vote expected at 2 pm. As a reminder, the Senate already passed this proposal last week. The debt "ceiling" raise by Congress seems like a done deal, but Congress will likely propose a statutory PayGo proposal to go along with the debt ceiling rise. Watch it live here on C-Span.
"The fun fact I'll give you is there is almost 70 billion sq. feet under construction right now in high rises, commercial, residential and light manufacturing. We estimate about 30 billion sq. feet is commercial, what we would consider is office space. That's a 5x5 cubicle for every man woman and child in China. They are building high rises in cities with already 15-20% vacancy rates, and those are the government's numbers. The real vacancy rates are higher... The Chinese banking system is the problem, it is loaded with bad debt...Our geostrategic position is a lot better than China. Keep in mind China imports almost all its essential materials... They send us stuff, we send them pieces of paper, who would you rather be." - Jim Chanos
Andrew Cuomo To File Civil Securities Fraud Charges Against Ken Lewis and BofA CFO Joe Price Even As The SEC Proves Its Incompetence Yet AgainSubmitted by Tyler Durden on 02/04/2010 - 12:22
NY AG Andrew Cuomo just announced he would file civil securities fraud charges against BofA ex-CEO Ken Lewis and CFO Joe Price under New York's Martin Act. This blow to Ken Lewis follows hot on the heels of yet another attempt by the ever pathetic and worthless SEC to cover up the whole Merrill mess, this time by proposing yet another settlement with BofA, however instead $30 million this time taxpayers will pay BofA investors $150 million. The fact that there is no change in the SEC's M.O. from before, but merely an increase in the "booty", is sure to anger Judge Rakoff even more. The need for a referendum over the fitness of Mary Schapiro to serve her job as head of the SEC in light of these two diametrically opposing actions is now greater than ever.
The Treasury just announced that it will auction $77 billion in Bills in the next week, broken down as follows:
- $24 billion 3 month Bills on February 8
- $27 billion 6 month Bills on February 9
- $26 billion 1 year Bills on February 9
This joins the previously announced $81 billion in coupon bonds previously announced for auction.
- $40 billion 3 years Bonds on February 9
- $25 billion 10 year Bonds on February 10
- $16 billion 30 year Bonds on February 11
The increasing rotation out of Bill reliance and into Bonds is sure to put ever greater pressure on longer-dated yields, even as the short-end continues seeing massive demand due to the previously announced jiggering by the SEC in money market accounts which could in the near-future be experimenting with their newly-legal right to suspend redemptions.
The STUPID Index is on a roll: it is now 12bps wider to 224, the widest level since April 4, 2009. With UK CDS nearing 100 bps, STUPID non-member, and the country which will ultimately have to fund rolling bailouts, Germany - is somehow trading inside the US, north of 50 bps. Absent the Deutsche Mark making a stunning comeback, coupled with its becoming the reserve currency upon its reintroduction, there is no reason why the Germany-US spread should be negative (which is not to say the the US CDS is rich here).
Carry Traders Getting Carry'ed Out Feet First, All Who Followed Goldman's BZL Trade Reco Now Taken To The WoodshedSubmitted by Tyler Durden on 02/04/2010 - 11:42
All carry trade pairs (and the traders who still have these on) are getting the Friend-O treatment today. Whether the funding currency is the dollar ot the yen, the need to convert paper losses into real ones will likely hit the stops today causing a rush for the exits (if it hasn't happened already). At this point you can take Goldman's ever optimistic double down on the BZL trade and use it for toilet paper. One wonders if Lloyd wouldn't be happier not having a prop desk on days like today. Incidentally, both Deutsche Bank and Citi are actively eliminating their prop trading desks. Deutsche Bank earlier announced that "the bank has eliminated its proprietary credit trading business and reduced proprietary trading in equity and equity derivatives by 90 percent, Ackermann said in remarks prepared for the bank's annual results media conference on Thursday." Thank you Boaz Weinstein. In other news, Citi prop traders Matthew Newton and Matthew Carpenter has just bailed, seeing the writing on the wall.
Yet another supporter of the huge imbalance between bond supply and demand emerges, this time it is the ever controversial Nassim Taleb, who speaking at a Moscow conference today, the same place where Roubini said to get the hell out of the dollar, said that "it is a no brainer [that] every single human being" should be short Treasuries, "citing the policies of Federal Reserve Chairman Ben S. Bernanke and the Obama administration."
Who would have thought that the much anticipated European contagion would actually arrive. It was priced in right? Algos and correlation desks are flabbergasted that this is one situtation that the Fed apparently is helpless with. And if it does, it would only be dollar positive and stock market negative. Indeed, regarding the first, the dollar is now back to July 2009 levels. Regarding the second, ES takes out the 1085 support to the downside with much conviction. We have previously discussed where next technical support levels are (hint: lower).
A new loan BWIC has been circling the market, this one for just over $280 million, as another small portfolio of loans needs to find a new owner. The biggest positions include Transdigm TL $5.3 million, Georgia-Pac TLB $5.1 million, Dean Foods TLB $5.1 million, Celanese TL $4.9 million and AMC Entertainment TL $4.9 million. We have yet to hear if the trader organizing this particular auction has reported in sick. All bids are due at 11:30 am today to your favorite loan salesman.
A unique look at bond behavior will serve to illustrate how risk is lowered in holding long Treasuries for the coming year.
- We hope you bought some: US CDS widest (why do they keep saying highest) since April (Reuters)
- Pesek: Biggest bubble in history is growing every day (Bloomberg)
- Weil: Obama's $6.3 trillion scam is America's shame (Bloomberg)
- Portugal, Spain lead worldwide decline in stocks, dollar gains. Why, oh why, can't every currency be a reserve currency? (Bloomberg)
- Roubini: The ticking US fiscal time bomb (Forbes)
- GMAC reports record loss on home mortgage defaults (Bloomberg)
- Micro investment bank Imperial Capital shelves plans to go public at a ludicrous 4.69 times net tangible assets per
share (3x more than prevailing 1.52
times). More importantly, everyone is expecting the IPO of Hustler affiliate, porn site AdultFriendFinder (Bloomberg)
Initial claims just made a negative U-turn and posted their first weekly increase since the beneficial inflection point. After new home sales and NAHB, is the initial claims double dip next? This week's number of 480,000 was 25,000 worse than expected, and 8,000 thousand worse than last week's 472,000. The 4-week average rose to 11,750 to 468,750. According to the Labor Department this was a straightforward report with "nothing unusual" and no states estimated. Unadjusted claims rose 28,234 to 530,405. Continuing claims increased by 2,000 on a SA basis, to 4.6 million and by 62,784 NSA to 5.7 million. EUCs surged once again to 281,442 for a new total of 5,632,219. Extended benefits claims fell 39,129 to 222,833 as ever increasing numbers of people roll off extended benefit eligibility.
Contagion is here. Portugal and Greece default risks are now racing whose CDS can hit 500 first... Then 1,000... Forget the bond vigilantes: the sovereign default vigilantes just called Almunia's bluff. At last check SovX was flirting with the record century mark, Greece was almost back to record wides with some bids of 410 bps floating around, while Portugal, which is today's whipping boy, exploded to 215 bps. We eagerly await to see which other country will join the CDS ballet. Almunia is now openly waging a two-front war, which will soon become multi. The last time this happened to a European, the results were not that good.