Archive for May, 2008

Transparently political

Friday, May 30th, 2008

Nothing appears to generate efforts towards transparency and compliance more than the threat of government regulation and on Thursday the Commodity Futures Trading Commission (CFTC) and Intercontinental Exchange (ICE) announced steps to create greater transparency in the reporting of energy trading in general and crude oil in particular.

The CFTC announced “multiple energy market initiatives,” in a release yesterday. That was followed by a release from ICE stating that it had facilitated the development of a cross-border program to provide enhancements to its energy market data reporting in concert with the CFTC and the U.K. Financial Services Authority (FSA) related to its West Texas Intermediate (WTI) crude oil futures contract.

The moves may have been prompted by multiple efforts in Congress to place blame somewhere for rising energy costs. The Oil Trading Transparency Act seeks to apply U.S. reporting requirements to non-U.S. markets and the Consumer-First Energy Act of 2008 calls for higher margins on crude oil futures.

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Bad day

Wednesday, May 28th, 2008

CME Group stock settled at $437.20 on Wednesday, a 21-month low close dating back to August 30, 2006. At first glance it would be easy to assume that the underperformance is due to recent reports that New York Mercantile Exchange (Nymex) members are threatening to reject the definitive agreement the Nymex board signed with CME for CME to purchase Nymex but another, perhaps more ominous, factor may be at play.

On May 20 the U.S. Senate Committee on Homeland Security and Governmental Affairs held a hearing entitled “Financial Speculation in Commodity Markets: Are Institutional Investors and Hedge Funds Contributing to Food and Energy Price Inflation?”

The hearing included several speakers who felt that index funds are responsible in great part for the rise in commodity prices. The Commodity Futures Trading Commission (CFTC) maintains, however, that other factors related to traditional supply and demand are at play.

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Confident of doom

Tuesday, May 27th, 2008

With all the debate over whether or not we are in a recession or whether or not the worst of the housing and credit crises is behind us, it may be best to ignore the talking heads and look at the data. Unfortunately the data is not good.

Tuesday we where hit with record poor housing numbers and a continued decline in consumer confidence. The S&P Case-Shiller Home Price Index for March showed “continued broad based declines in the prices of existing single family homes across the United States.”

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PIMCO’s Gross cries foul

Thursday, May 22nd, 2008

We have commented here recently about the folly being perpetrated in some of the governmental reporting of statistics. The distortions have grown so obvious that the Consumer Price Index (CPI) for April reported a drop in the cost of energy based on seasonal adjustments. Add that to the continuing outrage of relying on the core number, which excludes food and energy.

While all of the major reports’ numbers can be challenged, the CPI is perhaps the worst offender as that number is used to adjust Gross Domestic Product and is the basis for cost of living adjustments in social security payments and often in private sector salary increases.

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Farm bill passed after all

Thursday, May 22nd, 2008

Earlier today, the AP reported that because pages were missing from the vetoed Farm Bill sent to President Bush, a re-vote by the House and Senate on the bill, and a re-submission of the bill to the President, would be required. However, now Congress has gone ahead and overriden Bush’s veto and passed into law all parts of the bill except the missing pages (which included a section on trade policy). The release by the House Ag Committee said: “Today, the House also took action to correct the clerical error that resulted in the unintentional omission of the trade title from the enrolled farm bill and ensure that the entire farm bill is enacted into law swiftly. Most of the farm bill is now law.” The Farm Bill includes the CFTC Reauthorization Act of 2008.

Avarice in bloom

Thursday, May 22nd, 2008

Sentinel bankruptcy trustee Frederick J. Grede says he has a very good idea what happened to the rest of the money that disappeared in the Sentinel scandal. “We think there are significantly more sources of recovery,” he says, including the Bank of New York and “the accountants,” and adds that there will be other lawsuits to recovery more of the Sentinel customer funds going forward.

In the two settlements with Philip Bloom and son Eric Bloom, Grede recovered $10.7 million of the missing $350 million, and released Philip Bloom, Eric Bloom, their trusts and Sybille Bloom, Philip’s wife, against any pending or future lawsuits from the creditors.

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Farm bill foul-up

Thursday, May 22nd, 2008

Reauthorization of the Commodity Futures Trading Commission (CFTC) hit an an unlikely delay yesterday when lawmakers revealed a goof in the Farm Bill which includes a measure to reauthorize the CFTC. The bill passed the House and Senate last week with the two-thirds majority required to override a veto. It was vetoed as expected by President Bush yesterday. House members then voted to override the veto, and the Senate was set to vote on an override as well when it was discovered that a 34-page section of the bill had been omitted from the bill sent to the White House due to a “printing error,” the AP reported. According to the AP, because Bush vetoed a different bill from the one Congress passed, the eventual law could be rendered unconstitutional.

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Fed rediscovers inflation but not plain English

Thursday, May 22nd, 2008

The minutes of the April meeting of the Federal Reserve’s Federal Open Markets Committee (FOMC) were released yesterday. They reflected the Fed’s view that the economy would continue to weaken and contained amended projections of much higher inflation as well as slower growth.

All of the Fed’s weaker economic projections stopped just short of declaring that we are in or are headed into a recession. But the dubious use of core Consumer Price Index (CPI) inflation measures that exclude food and energy as opposed to the broader measure as the deflator in Gross Domestic Product (GDP) calculations is the difference between whether we are technically in a recession or not. So I guess those of us who do not eat or use energy are not in recession, the rest of us are.

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Bear Stearns t-shirt, anyone?

Wednesday, May 21st, 2008

The New York Post reports today that employees in Bear Stearns‘ New York offices bought up various Bear memorabilia, including baseball caps and t-shirts, before they’re gone for good. The investment bank was bought out/bailed out by the Federal Reserve and JPMorgan Chase in March. The bargain prices of some mementos – baseball caps at $8.60 and umbrellas at $7 – were higher than the bargain price of $2 per share, later raised to $10 a share, that JP Morgan offered for Bear Stearns stock. The buyout is expected to be finalized by June 1. The Post reports that JP Morgan will be keeping 45 percent of Bear Stearns staff after the merger. At least those that are leaving are taking some lovely parting gifts.

MF Global takes on investor

Tuesday, May 20th, 2008

MF Global had a pretty tough first quarter as rogue trader Evan Dooley cost the firm $141 million in overnight wheat trades in February and rumors of a connection with a Bear Stearns investor pushed its stock price to below $5 on March 17. Since then, MF stock has inched its way back to the somewhat depressed levels that followed the wheat incident.

Today MF Global announced in its 2008 fiscal fourth quarter (first quarter) earnings report and tried to place a positive spin on it but the biggest item was that private equity firm J.C. Flowers & Co. LLC would make a $300 investment in MF Global.

MF reported a $71.1 million loss for the quarter and losses of $57.6 million for the fiscal year ending in March. It also reported total futures and option volume grew 38% year over year and net revenues increased by 10%.

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