Judge Appointed In Goldman Case, Barbara Jones, Is A Racketeering/Organized Crime Expert And A Bill Clinton NomineeSubmitted by Tyler Durden on 04/19/2010 - 20:09
The recent legal case against Ken Lewis and Bank of America proved just how critical the Judge selection in these SEC-spearheaded cases can be. The case of the Securities and Exchange Commission v. Goldman Sachs & Co. et al (Southern New York District, 10-3229), has been assigned to Judge Barbara S. Jones. The Temple University JD grad's career revolves around Organized Crime & Racketeering (two specialties that will be particularly appropriate); she also served as Assistant US attorney for the NY Southern from 1977 to 1987. Most importantly, she was assigned to the Southern District Court in 1995 on the nomination of one William Jefferson Clinton, following the recommendation of Daniel Patrick Moynihan, both certainly not of Republican persuasion. Following today's disclosure that the SEC vote was executed along party lines with Democrats voting against the squid, it is not too surprising that Judge Jones seems to have Democratic roots. We are currently tracking down Judge Jones' donation record. We don't think we will be surprised.
Oil prices opened lower on Monday, and they ultimately ended well lower on Monday, as traders continued to sell oil. Equities started the day lower, as well, as selling from Friday held over. But, while oil could not raise itself, equities were able to advance from their early lows to finish the day with gains. The stock market proved, as it has before, that lawsuits and courts are no match for profits, and Monday’s gains in equities came as the result of very strong (better than expected) first quarter profits from Citigroup. After testing levels beneath 11,000 early on Monday, the DJIA finished the day at 11,092.05, up 73.39 points. That took away one source of selling in oil, but it could not negate the other one, which came from the ongoing Icelandic volcano?related grounding of trans?Atlantic air travel. While jet fuel is hardly one of the glamour products processed from crude oil, it does account for 7.37% of the refined barrel. That is enough to make a difference in this market.
Spreads ended the day modestly wider, underperforming stocks from Friday's close, as despite notable swings intraday, credit markets tracked equity markets almost perfectly, ending at the day's best levels. HY outperformed IG by the close (with its higher beta to stocks) but single-name breadth in credit was very negative.
Below is an update of the most recent US Treasury tax withholding picture. As one can very plainly see it is getting worse, on both a week over week, a YTD cumulative basis, and, probably most relevantly to some readers, on a 4 week running bucket cumulative basis. In the week ended April 16, the US Treasury collected $29.3 billion, 10% less than the comparable week in the prior year when $32.5 billion was withheld. Cumulatively, the difference is now at an almost 2010 high, hitting a $16.7 billion difference between the YTD period and the comparable period in 2009 (only highest cum total was in Week 2).
Continuing our coverage of the statistical aberration that is Mutual Fund Mondays, we have now officially resumed our adventure in Wonderland. Today marked the 18 out of the last 19 Mondays when the market was up. So far Mondays alone have generated a cumulative YTD return of just under 10%. This means that if one were to take away every Monday from every week in 2010, the S&P would have been negative. And another way of looking at the data: since September 2009, there have been 4 down Monday out of 33 total: a simplistic odds analysis indicates that there is an 88% chance that next Monday will be green. And as always: statistically self-fulfilling prophecies work until they don't.
A Return To Rate Normalcy Will Cost The Fed Hundreds Of Billions; The Fed Will Go "Negative Carry" In 2015: D-Day For AmericaSubmitted by Tyler Durden on 04/19/2010 - 17:32
Today, Chris Whalen's Institutional Risk Analytics carries a fantastic piece by Alan Boyce, in which the author picks up where we left off some time ago in deconstructing the DV01 of the Federal Reserve's SOMA. As a reminder, using Jefferies data, we observed that the Fed's DV01 on its balance sheet is about $1 billion (the potential unrealized profit/loss for every basis point move in interest rates, and with ZIRP here, rates can only go up, so make that just loss without the profit) . Alan Boyce, a former Fed member, CFC executive, and Soros portfolio manager, provides a more granular analysis of the Fed's holdings and comes up with an even scarier DV01: one that is 50% higher, or a $1,509 million/bp. This means that the Fed faces a "$75 billion loss for the first 50 bps move in the markets." As before, it is obvious why the Fed will do everything in its power to keep rates as low as possible for as long as possible, as the vicious cycle that will begin with increasing rates will make all future press releases of how much money the US taxpayer has "made" on the US' bailout of the mortgage industry far more problematic. Boyce also discusses how precisely it is that the Fed has managed to maintain rates at current record low levels for so long, what the cost of an appropriate hedging portfolio would be, and, critically, the implications of what will happen when markets realize that we are caught in a state of artificial suspended and Fed-endorsed animation. The primary conclusion: look for interest rate volatility to surge by 50% even as the Fed scrambles to cover hundreds of billions in losses in its portfolio sooner or later. Boyce's summary is basically that the countdown to the end of the Fed QE regime is now on: "If you look at forward fed funds (Eurodollar curve less basis swap),
the FRB will go negative carry in March 2015, where 3 month financing
rates are forecast to be over 5% (just gets worse and worse from
there). The point here is that mark-to-market accounting is an
iron law. You cannot escape the losses just because you do not report
them. If the FRB loses $200 billion on mark to market,
there will be $200 billion LESS that they remit to the Treasury
Department every year. That will require legislation to either raise
taxes or lower spending by $200 billion (or run up bigger Federal debt
to be paid back by another generation)." Must read analysis.
After releases by JPM and BAC last week, Citi’s improvement in asset quality and capital markets revenues had been expected. However, even excluding CVA marks, trading revenues were below 1Q2009 results. While there are positive developments evident in these earnings, we remain cautious on Citigroup relative to its peers, especially at current spread levels. In addition, the company is likely to be a more frequent issuer given its relatively low share of US deposits. The overall positive mark-to market in the Special Asset Pool is a positive, but marks were still negative for CRE and Alt-A mortgages among others. Citi Holdings remains sizable at $503 billion and consumer delinquencies still remain high, with Citicorp 90+ delinquencies unchanged qoq and 30-89 day delinquencies increasing 5 bp qoq indicating risk levels remain elevated.
Here is the reason for the surge: all day everyone sold off yen and bought whatever risk assets they could find. The carry trade is back. Risk on. As equities surged higher, all the new found money had to be put somewhere: just as equity indices stormed higher so HY rushed back to the day's highs. Stocks, bonds, who cares - buy it all. In the meantime credit is once again scratching its head at the lemmingness of stocks. Even with Goldman stock rising by $2.50, its CDS was 7 bps... wider! Nothing makes sense anymore. Sell yen, but whatever crap you can still get your hands on. The crappier the better. Obama said so.
In the rush over Goldman coverage and volcanic news, a very relevant piece of market update may have gotten lost, namely that Moody’s/REAL All Property Type Aggregate Index just peaked once again. Moody's reports that this index "measured a 2.6% price decline in commercial properties in February. This decrease comes on the heels of three consecutive months of rising prices, and brings the level of commercial property prices 41.8% below the peak measured in October 2007. Values are now down 25.8% from a year ago, and 41.6% from two years ago." This is the first time prices have fallen since October of last year: have we just hit price resistance in CRE?
In the video below, it appears that Steve Liesman of CNBC has access to deposition or other facts in the SEC case. Perhaps he has been talking to Paolo Pellegrini, Paulson’s former head trader who is believed to be a key witness for the SEC. We have found no one else that is reporting on case specifics beyond what was in the SEC complaint. Liesman reports that the Abacus 2007-AC1 deal was somewhat unique in that it was Paulson’s only CDO that used a neutral third party manager to select collateral (ACA management) or “bespoke” deal. Pauslon did other CDO deals where they picked the collateral directly and it was disclosed as such. What is not clear is if Paulson’s economic interest in those deals failing was also properly disclosed. The implication is if Goldman loses this case it will not lead to a precedent that will spread to many other CDOs.
One stock, a company which is effectively bankrupt absent the government's support and the FASB's suspension of Rule 157, now accounts for 20% of total market volume. At last check, Citigroup had traded 1.6 billion shares, one fifth of total market volume. Why does anyone still fool themselves that the market is indicative of the total universe of stocks. We are confident that if we add Goldman, BofA and the other financials, especially their penny stock variants, we would get something like 40% of all volume. This is the sector which as we have repeatedly reported has seen short recalls by assorted custodian entities and repo desks.And as we type, Dick Bove is on CNBC providing the instacommentary he had previously banned himself from doing before, and confirming what we have been saying all along - that Goldman Sachs is a Buy only because it is a monopoly.
It appears the Democrats at the SEC were hell bent on going after Goldman, even as the Republicans votes against action, in a close 3-2 vote. Some say this is the reason for the most recent surge in the market. As this event has already passed and at this point it will either be settlement (which Goldman has made clear it does not care about) or an actual jury trial, how this disclosure is in any way relevant to move the market is once again beyond us.
Prepared Remarks By Bernanke, Fuld And Schapiro Contradict Those Of Anton Valukas In Tomorrow's Lehman HearingSubmitted by Tyler Durden on 04/19/2010 - 14:44
In a nutshell, Bernanke says he was not supervising Lehman, Fuld was not aware of Repo 105, and the SEC had never heard of such a concept.The only person who is not lying, Anton Valukas says that he "found Lehman was significantly and persistently in excess of its own risk limits" and confirms that the SEC is nothing but a pathetic liar lead by incompetent idiots: "we found that the SEC was aware of these excesses and simply acquiesced" and "we believe it is clear that the SEC wasLehman's primary regulator." And just in case the FRBNY thinks it can avoid claims of potentially criminal negligence "
Valukas concludes: "there were "serious lapses" in SEC, federal reserve bank of New York working together to avert Lehman's failure." In other the CEO, the Regulators and the deranged money printer all wash their hands of the fraud that very well may have led to the biggest and most dramatic bankruptcy in history, despite that the independent third party arbiter finds them all guilty of gross incompetence and possibly collusion.
"Mr. President, please show the American people the AIG emails. In the wake of the disclosures associated with Friday's government fraud accusations against Goldman, Sachs & Co., one of our nation's wealthiest, largest and most politically well-connected banks, it is inexcusable the U.S. government still refuses to release the thousands of emails that exist between AIG and Goldman Sachs. Unlike the Icelandic volcano, this was no natural disaster. Trillions of dollars have been defrauded from the U.S. taxpayer by a banking scam run by the top 1% of our country." - Dylan Ratigan
FT Alphaville has released the full September 2009 document that Goldman released in defense to the Wells Notice. Amusingly we note that Goldman requested a FOIA CONFIDENTIAL TREATMENT on the submission. That didn't work out too well. We are going through it now, although what is interesting is that Goldman, in defending its own practice with Abacus' (lack of) disclosure, inadvertently throws Merrill Lynch, and Magnetar, under the bus, claiming Merrill's Auriga CDO had comparable parallels to Abacus, which if the SEC finds strong enough in the GS case, it will certainly frown upon when perpetrated by ML-Magnetar. This has lead some to speculate that Bank Of America is likely next on the Wells Notice disclosure bandwagon.