Archive for October, 2008

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Citadel exits ELX board

Thursday, October 30th, 2008

In a not so shocking move, Citadel has given up its board membership at the Electronic Liquidity Exchange (ELX), according to wire reports. The move was somewhat expected considering Citadel’s joint venture with CME Group to form a central clearing facility for credit default swaps (CDS). Citadel will still keep an equity stake in ELX and use its platform – whenever the platform gets off the ground, that is. Since its launch was announced in December, some have wondered if the new exchange, which was established by several investment banks as well as Getco and Peak6, was just a rumor. But its newly-named CEO Neal Wolkoff says that ELX is indeed coming. “During that public quiet period there was a lot going on,” he says, including an evaluation of clearinghouses (ELX has not yet chosen its clearinghouse), and dealing with technology and regulatory compliance issues.

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Treasury provides venture capital

Wednesday, October 29th, 2008

On the way into work this morning I read a story of how a healthy local bank here in Chicago (actually upscale Lake Forest) was “actively evaluating whether to seek between $80 million and $240 million from the U.S. Treasury Department’s bailout program.”

Why? According to the Chicago Tribune story the CEO of this bank suggested that with the magic of leverage this program could provide $2 billion worth of capital to perhaps make acquisitions.

If you weren’t paying attention, soon after the bailout bill was passed the Treasury decided to switch gears and directly fund banks instead of simply buying troubled assets to loosen up credit.

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Posted in Mergers, Regulatory/actions | 3 Comments »

USD: Back in the saddle again

Wednesday, October 29th, 2008

The U.S. dollar has been on rampage, setting a new high yesterday of 88.485 yesterday, Oct. 28, up from 73.965 on Aug. 1.

For a long while it was fashionable and profitable to bash the greenback, but one of the first traders I know to call the turn is InterbankFX Chief Currency Strategist Rob Booker, who has ridden that bull for some time. (see the September issue’s cover story, Misery Finds Company).

One of Booker’s FX indicators is the Treasury International Capital Data, which tracks international money flows. The most recent report, released on Oct. 16, showed net Long-term securities transactions have been way down. In May, they were $83.2 billion; June: $53.6 billion; in July, it was just $8.6 billion and August: $14 billion.

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New low

Friday, October 24th, 2008

Both the Dow Jones Industrial Average and S&P 500 dropped significantly on Friday settling below the multi-year low close from Oct. 10. The low close in the Dow, 8,378.95, goes back to April 2003 and the close in the S&P,866, goes back to March of 2003. Despite intraday losses each of the last two days, both indexes managed to stage strong end-of day rallies to settle above the Oct. 10 low close.

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Not so fast

Friday, October 24th, 2008

Christopher Cox, chairman of the U.S. Securities and Exchange Commission (SEC) said he strongly supported a merger with the Commodity Futures Trading Commission (CFTC) during Congressional hearings on Thursday according to wire reports.

In a quote appearing in a Reuters’ story that must have sent chills up the spine of everyone involved in the futures industry, Cox said, “This would bring futures within the same general framework that currently governs economically similar securities.”

The story goes on to say that U.S. Treasury Secretary Henry Paulson recommended such a merger in his regulatory reform “blueprint” published in March.

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Now clear this

Wednesday, October 22nd, 2008

CME Group looks like the leading candidate in the battle to establish a central clearing facility for credit default swaps, according to a group of experts speaking at the Financial Times Electric Money Conference on Monday. However, the panel seemed a bit unsure about whether any of the ventures would catch on. Gillian Christie, director of Deloitte Consulting LLC, said of clearing ventures, “You can build something, but unless the brokers come” it won’t take off. Pete Axilrod, managing director of the Depository Trust & Clearing Corporation, noted that DTCC has a working relationship with all of the exchange clearinghouses. Today, DTCC and LCH.Clearnet announced plans to merge and create the world’s largest clearinghouse, with the goal of “significant synergies and effeciency gains and significantly enhanced economies of scale” and an expected reduction of costs for clearing services, especially for equities in both Europe and the U.S.

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Are free markets to blame?

Tuesday, October 21st, 2008

In the midst of reading about a protest against naming a new institute at the University Chicago for one of its best known Nobel laureates, Milton Friedman, I received an e-mail with a recent speech given by Leo Melamed, chairman emeritus of CME Group, to the Financial Innovation Conference at Vanderbilt University. This was quite ironic as Friedman was a hero to Melamed and played a central role in legitimizing the CME’s International Monetary Market (IMM), which transformed the futures industry from a niche agricultural market to one of global finance.

Melamed was standing up for free markets as surely Friedman would be doing if he were still alive.

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Exchange leaders mull meltdown

Tuesday, October 21st, 2008

Regulatory reform after the market meltdown was a hot topic at the Financial Times’ Electric Money Conference in New York yesterday. One panel covered commodity price movement and recent regulatory efforts to restrict speculation. “Volatility is going to increase because of actions that the U.S. government has taken. The markets are noticeably smaller,” said John D’Agostino of Dagger LLC, a former vice president at Nymex, noting that basic open interest for crude oil on Nymex has gone down 58% from the same time last year. “The net impact of all of the fervor [over prices] has created a market that is less deep and less broad which will ultimately increase volatility,” he said.

Ron Oppenheimer of Merrill Lynch Global Commodities said pension funds were able to explain fairly well their role in the markets after Congressional attacks on them this summer, and that government efforts to regulate speculators have been overshadowed by the recent market meltdown.

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Wanna get away?

Thursday, October 16th, 2008

Southwest Airlines today reported its 70th consecutive quarterly operating profit, but upon a closer look, the company, long known for its fuel hedging prowess, took a substantial loss due to declining fuel costs.

From the earnings release:
After special charges totaling $247 million primarily related to mark-to-market adjustments on a portion of the future periods’ fuel hedge portfolio required by Statement of Financial Accounting Standard (SFAS) 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, the Company reported a third quarter 2008 net loss of $120 million, or $.16 loss per diluted share. This compares to net income of $162 million, or $.22 per diluted share, for third quarter 2007. Excluding these special charges and other special items, the Company reported third quarter 2008 net income of $69 million, or $.09 per diluted share, compared to $156 million, or $.21 per diluted share, for third quarter 2007.

For an excellent primer on How airlines hedge fuel risks, see this story from our September issue.

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Credit crisis hits Nascar

Thursday, October 16th, 2008

As the economic crisis moves from Wall Street to Main Street, one of the early manifestations may be the lack of sponsors in Nascar and the Indianapolis 500.

According to Bloomberg, “General Motors Corp., Chrysler Corp., Sears Holdings Corp. and Chevron Corp. will cut or drop sponsorships next season.” And Dario Franchitti, winner of last year’s Indianapolis 500, has had to drop out this year due to a lack of sponsorship, which can cost as much as $7 million to compete in the season’s 35 races.

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