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Monthly Archives: January 2013

$JPM Bet Against Itself In London ‘Whale’ Trading Scandal

“* Investment bank bet against CIO in derivatives market

* Bank said to have discussed merging opposing trade books

* Opposing bets could fuel claim JPM is too big to manage

By Emily Flitter

NEW YORK, Jan 29 (Reuters) – There is a new twist in the London Whale trading scandal that cost JPMorgan Chase $6.2 billion in trading losses last year. Some of the firm’s own traders bet against the very derivatives positions placed by its chief investment office, said three people familiar with the matter.

The U.S. Senate Permanent Committee on Investigations, which launched an inquiry into the trading loss last fall, is looking into the how different divisions of the bank wound up on opposite sides of the same trade, said one of the people familiar with the matter.

The committee is expected to release a report on its investigation in the next few weeks.

The people familiar with the situation did not comment on the dollar value of the opposing trades placed by JPMorgan Chase & Co’s investment bank traders, which was much smaller than the total positions put on by the CIO.

The intra-bank trading was not mentioned in a 129-page report JPMorgan released on Jan. 16, which chronicled some of the bank’s risk management failures. The scandal has led to a number of management changes at JPMorgan and has sullied CEO Jamie Dimon’s image as a hands-on risk manager.

Kristin Lemkau, a spokeswoman for JPMorgan, declined to comment on the investment bank’s trading positions.

A spokeswoman for the Senate committee, led by Michigan Sen. Carl Levin, a Democrat, declined to comment on its investigation.

It was widely known that a group of about eight credit-focused hedge funds, such as BlueMountain Capital Management and Saba Capital Management, were on the other side of the trades that JPMorgan’s London-based Whale team made on an index tied to corporate default rates. But the role JPMorgan’s own investment bank may have played in the messy unwinding of the derivatives trade has not come out until now….”

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Senators Grassly and Brown Question Lack of Justice at DOJ on Disproportionately Low Bank Settlements

“WASHINGTON, Jan 29 (Reuters) – Two U.S. senators on Tuesday questioned whether the Justice Department has been aggressive enough in prosecuting misconduct at the largest banks and asked the department to turn over information on how it determines punishments.

Sherrod Brown, a Democrat who chairs a Senate Banking subcommittee, and Chuck Grassley, the top Republican on the Senate Judiciary Committee, said they were worried certain Wall Street banks enjoyed “too big to fail” status in enforcement policy, resulting in penalties that were disproportionately low.

The requests come amid renewed interest in whether U.S. authorities have held accountable the institutions and individuals who contributed to the financial crisis.

In a letter to Attorney General Eric Holder, the senators asked whether the Justice Department ever failed to prosecute any institutions due to concern about the stability of the financial markets or imposed a penalty that reflected such concerns.

They also asked Holder to name outside experts that prosecutors consulted in making decisions about charging financial institutions with more than $1 billion in assets. Brown and Grassley also asked for copies of any contracts with such experts.

“Our markets will only function efficiently if participants believe that all laws will be enforced consistently, and that violators will be punished to the fullest extent of the law,” the pair wrote. “There should not be one set of rules that apply to Wall Street and another set for the rest of us.” …”

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Your Tax Dollars at Work: TARP Still Has You on the Hook for Billions

“Guess what, American taxpayer: More than four years after the financial crisis started, you are still on the hook for a nearly $15 billion investment in a subprime mortgage lender.

That’s just one of a litany of troubling facts in a new report by Christy Romero, the Special Inspector General for the Troubled Asset Relief Program, which pumped more than $600 billion into failing banks and other companies during the crisis. The report details the many billions of taxpayer dollars still sunk into hundreds of struggling banks, some of which are still failing, and the risks still festering that could create a future crisis.

The report is a striking reminder that, even as the stock market comes close to cruising to record highsled by skyrocketing bank stocks, the crisis still haunts us.

In fact, the bailout could arguably have made a future crisis more likely, by encouraging big banks to take on even more risks, in the widespread belief that they can always turn to the government for more cash in the event they crash the Hindenburg, again.

“The people taking those risks are insulated from the consequences — that’s moral hazard,” Romero said in a telephone interview. “It continues to exist, and it must be dealt with.”

The government is still mopping up the mess from the last crisis, as Romero’s report makes clear. Its portfolio of pain includes a 74 percent stake in Ally Financial, formerly known as GMAC, which was rescued repeatedly during and after the crisis, with little or no plan for ending the rescue, according to Romero.

Ally still owes the government $14.6 billion and might ultimately cost the Treasury Department $5.5 billion in losses, according to the White House Office of Management and Budget — part of a total long-term TARP cost that could exceed $60 billion….”

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State of the Union: Almost Half of American Households are One Emergency Away From Financial Ruin

“Kevin Price is one emergency away from not being able to cover his basic needs, but he doesn’t fit the stereotype of someone living on the financial edge.

Price lives in a three-bedroom house with his wife and two children in a suburb of Wilmington, Del. The family owns two cars, the kids participate in high school sports, and they all attend church services regularly. Price works full-time, as does his wife, and thanks to her job, the family has access to health insurance. But after covering rent, the cost of insurance for Price, his wife and their two children and other basic expenses, the couple had just $223 left in the bank in January.

Of his precarious financial situation, Price, 44, said, “It’s like Muzak in the back of your head. It’s a constant little annoyance.”

Price and his family aren’t alone in dealing with this constant threat. Nearly 44 percent of American households don’t have enough savings to cover their basic expenses for three months in the event of a financial emergency like losing a job or paying for unexpected medical care, according to a recent report from the Corporation for Enterprise Development. That figure has changed little from last year, the Assets and Opportunity Scorecard found.

“These are households and individuals that are living paycheck-to-paycheck. And without savings, you’re one misstep away from financial disaster,” Justin King, federal policy liaison for the New America Foundation, told The Huffington Post.

The Great Recession and its aftermath brought the plight of Americans facing financial insecurity to the forefront, Andrea Levere, president of the CFED, told The Huffington Post.

“It’s really a mainstream issue,” Levere said. “The good piece about this recession is that this issue isn’t just about ‘those poor people,’ it’s about half of us.” ..”

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DICK bove Sees a 30% Gain in Bank Stocks

“When well-known analysts make a major price call, investors and Wall St. usually listen. Outspoken bank analyst Richard Bove has done just that. The former Ladenburg Thalman and Rochdale securities analyst recently landed at Rafferty Capital Markets and has made some bold predictions in a fresh research report. If he is correct, owning large money center banks and other financial stocks may be a winning investment in 2013….”

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Insiders Cash Out of $FIVE on a Secondary Offering

Five Below Inc. (NASDAQ: FIVE) has enjoyed a rather good run since its 2012 initial public offering. The company sells products that cost under $5 and are supposed to be targeted towards children. Now we have a secondary offering from the company, and investors should know that this offering is the insiders cashing out.


The secondary offering was raised in size due to demand, up to 11.315 million shares at $35.65 per share. This was projected to be 10.315 million shares to be sold just last week. The underwriters were listed as Goldman Sachs, Barclays Capital, Jefferies & Company, Credit Suisse Securities, Deutsche Bank Securities, UBS Securities and Wells Fargo Securities. Certain selling shareholders have granted the underwriters a 30-day option to purchase an additional 1,697,250 shares of common stock.

Here is all that investors need to know on the surface: All of the shares are being offered by selling shareholders, including certain members of Five Below’s management team and affiliates of certain members of Five Below’s board of directors. Five Below will not receive any proceeds from the sale of shares in this offering.

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Short Selling: A Necessary Not So Evil

“(MoneyWatch) Short selling has received its share of blame for market crises, even being targeted in 2008 as a reason for financial stocks to continue plummeting. However, a new study suggests that not only is short selling not a cause of market problems, but is even necessary for markets to function correctly.

Short selling is the practice of selling securities (or other financial instruments) with the intention of subsequently repurchasing them at a lower price. To go short, the seller pays the holder a fee to “borrow” the securities and sells them. The hope is that the securities drop in price, allowing the seller to repurchase them for less than they sold them. They return the securities and pocket the difference. (Of course, they owe the difference if the securities rise in price, and the potential losses they face are unlimited.)

Because short selling can drive down the price of shares of that security, it has historically been a target for criticism. For example, short sellers were blamed for the Wall Street Crash of 1929. That led to regulations governing short selling being implemented, including a ban on selling short after a downtick in price. This was known as the “uptick rule” and was in effect until July 3, 2007, when it was removed by the SEC.


Short selling in 2008


The financial crises of 2008 once again brought short sellers into the cross hairs of Congress and the financial media. Critics blamed them for creating instability in the stock market, and for creating downward pressure on financial stocks in particular. In response, a number of countries introduced restrictive regulations on short-selling in 2008 and 2009. For example, in September 2008, the SEC banned short sales (primarily in financial stocks) to protect companies under siege in the stock market. That ban expired several weeks later as regulators determined the ban wasn’t effective in stabilizing the price of stocks. Temporary short-selling bans were also introduced in the U.K., Germany, France, Italy and other European countries in 2008.


Short selling evidence….”

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Study: End of Payroll Tax Cut Hurt Economy More than Expected

“New research shows that workers spent more of the payroll tax cut than expected — even more then they had planned to — thereby boosting the economy more than thought.

The bad news is that absence of the tax cut may hurt the economy more than expected.

Experts often debate if a lump sum, one-time tax rebate or small tax cuts spread out over time prompt workers to spend more and therefore stimulate the economy more.

The study by economists at the Federal Reserve Bank of New York found that tax cuts spread over time lead consumers to spend more — even more than they want to.

The 2011 payroll tax cut that reduced the withholding rate for Social Security and Medicare from 6.2 percent to 4.2 percent for about 155 million workers ended in January.

While workers intended to spend 10 to 18 percent of their tax-cut income, they reported actually spending 28 to 43 percent of the funds, the research showed. Only 12 percent planned to spend it, but 35 percent ended up spending most of it.

Why the difference between intentions and actions?

The researchers point to what they call “mental accounting.” When ask what they would to with the extra income in early 2011, workers viewed the additional income as single large amount. But they received it in relatively small amounts in every paycheck, so came to view it as extra income.

The end of the payroll tax cut may be a major reason for the sudden drop in the consumer confidence in January, which fell to its lowest level since November 2011.

The study shows that tax cuts like the payroll tax holiday have more impact than previously thought, notes Howard Gleckman of the Urban-Brookings Tax Policy Center.

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Feldstein: Rate Hikes and Housing Market Falls are Coming

“At some point, the Federal Reserve will finally have to raise interest rates, and the results won’t be pretty for the economy and the housing and financial markets, says Harvard economist Martin Feldstein.

The Fed has said it plans to lift its federal funds rate target — now at zero to 0.25 percent — when the jobless rate falls to 6.5 percent. In December, the unemployment rate was 7.8 percent.

Right now, with the 10-year Treasury yield at 2.02 percent, the inflation-adjusted yield is really negative, notes Feldstein, who was chairman of President Ronald Reagan’s Council of Economic Advisers.

“If we take long-term bond rates to anything like a normal number, that means higher bond interest rates, higher mortgage interest rates, pressure on the stock market and pressure on house prices,” he tells CNBC.

It doesn’t matter whether the Fed is able to raise short-term rates in an orderly fashion, Feldstein says. “Orderly is fine, but it still has to mean higher interest rates,” he points out.

“Once the market begins to focus on the fact that loan rates are going back up, we’re looking at a 4 or 5 percent 10-year Treasury yield. That will have an important impact on mortgage rates, house prices and the prices of other interest-rate sensitive assets.”

A Fed tightening also could spark inflation. “What worries me is the possibility that inflationary pressures could build up when the economy is still looking at high levels of unemployment,” Feldstein notes.

“It will be a challenge for the Fed to raise interest rates in a timely way. I think that could lead to inflationary pressures, which would contribute to higher long-term rates simply out of expectations of inflation.”

The housing sector is in the midst of a rebound, with the S&P/Case-Shiller index showing home prices rose 5.5 percent in November from a year earlier. But Feldstein believes the Fed is artificially propping up the residential real estate market….”

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Michael $DELL Will Contribute $1 Billion of His Own Funds To Take a Majority Stake in Going Private

“Michael Dell is trying to get control of Dell, Inc. with as much as $1 billion of his own personal funds. His goal: shift the company’s focus from PC sales to a more enterprise-focused company that can operate without the pressures of being publicly traded.

According to Bloomberg, Dell, who now owns 15.7 percent of the company, may contribute between $500 million to $1 billion to the buyout led by Silver Lake Management with potential support from Microsoft Corp. With the personal investment, Dell’s value in the company would be $3.45 billion….”

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$MSFT Announces GIT Support for Visual Studio

“Microsoft just made a major announcementthat will likely take many developers by surprise. At the ALM Summit in Redmond, WA this morning, Microsoft Brian Harry just announced that its Team Foundation Server and hosted Team Foundation Service (TFS), as well as the complete Visual Studio 2012 suite (through a plugin the company is releasing today) will offer support for Git, the increasingly popular distributed revision control and source code management system invented by Linux founder Linus Torvalds.

This is obviously one of the rarer moments where Microsoft embraces an open source solution that already has a lot of momentum behind it…”

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The Clam is Akin to a Cebus Capucinus


“Excerpted from Seth Klarman’s Baupost 2012 Letter to investors,

If economics were a hard science like chemistry, you’d mix a little of this with a bit of that and the concoction would lead to strong economic growth, full employment, rising home prices, buoyant financial markets, and low inflation every time. But economics is a soft science, and real life simply doesn’t work so predictably. Though economists might wish otherwise, economics is, at its core, behavioral.


Modern economies are too complex to be reliably modeled; their connections and correlations are loose and imprecise, the second- and third-order effects largely immeasurable, the fickle vagaries of individual and aggregate human behavior utterly unknowable. Put an economist in a powerful government job and provide levers that can be pulled to start the printing presses, set reserve requirements, fiddle with the Fed funds rate, expand the Fed’s balance sheet, and deliver indecipherable communiqués, and that economist will feel compelled to pull those levers.


He or she, like a monkey with a typewriter, might even give us Shakespeare (or Adam Smith) on occasion. But mostly that economist will spout gibberish, a mélange of untested and potentially counterproductive measures that unleash all manner of unintended consequences.


Were the meddling to actually remedy the targeted deficiency, it might well be at the cost of dangerous feedback loops and unexpected ripples growing beneath the surface into the incipient waves of tomorrow’s much larger problems.”

[youtube://http://www.youtube.com/watch?v=sQRShD0xuAk 450 300]

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Student Loan Balances Rise Along With Delinquencies

“A new study on student loans offers more evidence of the financial squeeze facing recent college graduates. But nearly as striking is the company behind the study. TransUnion, one of the nation’s largest consumer credit rating agencies, is among a growing number of organizations in the lending community looking closely at whether the growth in student debt is affecting the overall creditworthiness of a whole generation of borrowers.

“Thisis an emerging area of research,” said TransUnion Vice President of Research and Consulting Ezra Becker in an interview.

While the new study does not draw any conclusions about the borrowers’ creditworthiness, it does paint a grim picture of the college debt situation.

(Read MoreStudent-Loan Delinquencies Now Surpass Credit Cards)

TransUnion says it looked at all 300 million consumers in its database over the past five years, and found that as of last March 37.5 million had at least one student loan. That is up 35 percent from 2007, when 27.8 million consumers had student loans. The average student loan debt per borrower jumped to $23,829 in 2012 from $18,379 in 2007. That is a 30 percent increase. Reported student loan balances jumped 75 percent in the same period—”unprecedented growth,” according to Becker.

The study also found more than half of student loans are in “deferment,” where the borrower can temporarily delay making payments. Payments for certain types of student loans are automatically deferred while the borrower is still in school, but borrowers can also apply for deferment based on financial hardship. The difficulty comes when the deferment period—often three years—is up, and the borrower comes face to face with a dismal job market….”

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Gapping Up and Down This Morning



Symb Last Change Chg %
LND.N 5.05 +0.21 +4.34
PBF.N 33.00 +1.11 +3.48
SSTK.N 25.29 +0.82 +3.35
RIOM.N 5.35 +0.12 +2.29
ACT.N 85.84 +1.58 +1.88


Symb Last Change Chg %
RKUS.N 23.49 -0.66 -2.73
CORR.N 6.83 -0.14 -2.01
PBYI.N 24.65 -0.47 -1.87
WWAV.N 16.14 -0.19 -1.16
WDAY.N 55.93 -0.57 -1.01



Symb Last Change Chg %
MLNK.OQ 3.08 +0.89 +40.64
KERX.OQ 8.36 +2.30 +37.95
SOMH.OQ 11.60 +2.47 +27.05
OSBC.OQ 2.08 +0.39 +23.08
VTUS.OQ 3.28 +0.55 +20.15


Symb Last Change Chg %
GFNCL.OQ 7.50 -4.48 -37.40
SANM.OQ 9.20 -2.55 -21.70
ANAC.OQ 4.11 -1.06 -20.50
HTCH.OQ 2.29 -0.44 -16.12
JAXB.OQ 2.23 -0.42 -15.85



Symb Last Change Chg %
SVLC.A 2.60 +0.16 +6.56
SAND.A 11.71 +0.18 +1.56
BXE.A 4.96 +0.07 +1.43
WVT.A 11.62 +0.09 +0.78


Symb Last Change Chg %
FU.A 3.35 -0.10 -2.90
EOX.A 6.09 -0.16 -2.56
CTF.A 23.00 -0.29 -1.27
REED.A 5.41 -0.01 -0.18

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