Saturday, July 18, 2009

Noteworthy - Week of July 12th

Legendary broadcaster Walter Cronkite died at the age of 92 on Friday.

Sandra Sotomayor neared confirmation to the nation's highest court at the end of the week, with a full senate vote likely to occur in early August.

The biggest business news this week involved CIT, a spin-off from Dennis Kozlowski's Tyco consortium of the late 1990s and early 2000s. The nation's largest Small Business Administration lender for the past seven years is seeking financing in order to continue operations, after banking, unsuccessfully, on the Federal Reserve to bail them out. Going into the weekend, the century-plus old firm was looking for a life raft in order to avoid bankruptcy. Small businesses remain angry at the White House for not doing enough to help them during the deepest recession in over 70 years and at the Obama administration's willingness to hurt them with the latest health care reform initiative. A coalition of investors is attacking the government's plan to give the Federal Reserve additional powers.

This, at a time when its financial services peers' revenues are booming. Goldman Sachs, JP Morgan Chase and even Citigroup, all reported earnings surprises this week. Goldman shocked the Street with a 65% increase in 2nd quarter earnings based on revenues of $3.4 billion. Bank of America, however, struggled during the quarter as rising loan failures took a toll on its bottom-line. Mortgage firms are struggling to redo hard-hit loans. Meanwhile, big banks are ramping up their pay packages to top talent, a move that is certain to receive criticism.

China named Yi Gang, a U.S. trained economist and current vice governor of the People's Bank of China, as the new head of foreign exchange reserves. Earlier in the week, China announced that its foreign reserves had grown to $2 trillion for the first time ever and that growth during the second quarter accelerated to 7.9% up from 6.1% during the first quarter, a quicker turnaround than expected by the communist nation. Chinese short-term treasuries rose by over $38 billion during May, bringing its total U.S. debt to just over $800 billion, a sign that the most dominant liquid country in the world remains attached to the U.S., whether it likes it or not, and that its ability to diversify its holdings might remain limited.

Vice President Joe Biden told people attending an AARP town hall meeting regarding health care reform that the U.S. has to keep spending money in order to avoid bankruptcy. Compounding President Obama's plan to tackle the nation's health care issues, the director of the bipartisan Congrssional Budget Office, Douglas Elmendorf, stated this week that the CBO "does not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount."

Former Treasury Secretary Hank Paulson appeared in front of Congress this week to defend his role in the Bank of America/Merrill Lynch merger, which met huge criticism on the Hill. Also disclosed this week was a secret regulatory sanction on Bank of America, which requires the bank to overhaul its board and address it perceived business risks.

More than 250 prominent economists have warned Congress to stay away from the Fed out of fear that mingling by the legislative branch would put the independence of the U.S. monetary policy at risk. The backing of the bank comes at a time of outcry by the Congress, especially from the House of Representatives, to audit the Federal Reserve for the first time in its history.

Goldman Sachs chiefs' sold $700 million of their own stock following the Lehman collapse last September, at the same time Congress was bailing out the financial services industry.

Citigroup is close to a secret agreement that would increase the FDIC's scrutiny over the bank, as the government remains concerned about the multinational's quality of earnings.

The Justice Department is investigating the $28 trillion credit-default-swap market to see if banks have been violating antitrust rules in clearing, trading and information about the market.

Federal Reserve Chairman Timothy Geithner said that he sees signs of a U.S. and global recovery and reiterated that there is no need for a new stimulus package. Geithner also stated that he would defend the value of the dollar.

The Federal Reserve stated that it had lent $669 million to investors such as hedge funds to allow them to buy commercial mortgage backed securities in attempt to stabilize the dysfunctional market.

U.S. exports grew in May, while imports fell, dropping the trade deficit to its lowest level in nine years. Congress vows to fight anti-trade legislation in the cap and trade bill.

71% of the firms, 10% more than usual, have beaten analysts' expectations this quarter, lending support to market confidence.

Money fund assets in the U.S. fell by over $20 billion during the latest week, in a sign that risk continues to return to the marketplace.

Doubts of a U.S. recovery are growing in the marketplace.

IBM reported a 12% rise in profits during the second quarter; however, the technology consulting firm stated that it is seeing few signs of continued client spending.

India rejected the U.S. proposal for carbon emission reduction, stating that it has "among the lowest emissions per capita" in the world. A move almost certain to damage the U.S.'s desire to institute a cap and trade system.

State revenues continue to fall amidst the deep recession. 45 states have reported that their revenue has fallen by 20% over the same April and May period from a year prior, leaving cash strapped states looking for alternatives. Charter schools, a mostly non-union alternative public education program, have grown during the recession, despite some teacher opposition.

Cash-strapped cities are starting to outsource mass transit systems in an attempt to cut costs.

The International Accounting Standards Board is proposing a fair value rule aimed at simplifying how banks value their holdings.

It was discovered this week that two appointees to a congressional panel investigating the financial crisis work for a law firm that represents Wall Street, bringing concern as to whether the committee will be effective.

Morgan Stanley launched a new intellectual property securitization for Vertex Pharmaceuticals. Intellectual property rights are drawing investment interest.

90% of the $1.5 trillion 401(k) and other defined contribution plan assets are in actively managed funds. Plan administrators are looking to make index funds more available to their clients.

American schools are gearing up to fight the H1N1 flu in preparation for the start of school. Earlier in the week it was announced that the U.S. government plans on buying components for a vaccine from four drug manufacturers for $1 billion.

Defense contractors are taking aim at India as the nuclear nation attempts to modernize its military. The country also selected two sites where U.S. companies can plan to build nuclear reactors. Pakistani President Asif Ali Zardari met with opposition leader Nawaz Sharif this week in an attempt to ease political tension in the country, which is battling Islamic militants.

California stated this week that it is close to a new budget deal.

The California Public Employees Retirement Fund, the nation's largest public pension fund, has sued the top three ratings agencies in connection with its $1 billion in losses, arguing that each firm's ratings were "wildly inaccurate."

Former Congressman Michael Huffington is suing the Carlyle Group, claiming the private-equity firm misrepresented its safety risk.

A long-delayed plan to reduce Chicago's railroad congestion has won $322 million in funding from Illinois.

Walmart unveiled an environmental labeling program for its products this week that could redefine the design and makeup of consumer goods around the globe.

Apple released an update to iTunes this week that blocks rival Palm Pre from accessing the site.

Consumer spending is likely to remain weak amid a continued tough economic environment.

Wall Street is bracing for weak restaurant earnings as it expects that deep discounts by the restaurants have failed to bring back consumers.

Auto czar Steven Rattner is leaving his post after six months on the job, a move that has caught Washington by surprise.

Many U.S. airlines may face bankruptcy if travel demand does not improve by winter.

McGraw-Hill has put BusinessWeek up for sale, as the crunch in advertising continues to attack publishers.

Burger King has scrapped plans to offer a $1 double cheeseburger in a failed attempt to seduce customers away from rival McDonald's.

Microsoft announced a free online version of its Office software in an attempt to attack Google's recent assault on the firm.

Exxon Mobil is planning to invest $600 million into biofuels in a dramatic about-face from its recent viewpoint. The money will fund research into algae as a potential biofuel.

Publishers are starting to fight the e-book format amid pricing debates.

EBay is wooing entrepreneurs with $25,00o in cash prizes.

Google says that online ad revenue is stabilizing.

Analysts are predicting that the downturn in the market will alter the landscape for money managers, as investors remain risk averse, producing lower margins and, ultimately, fewer companies.

Independent boutique banks are growing, as senior big banks officials move to address clients who are in need of strategic advice. Boutique banks are also stealing M&A fees from the larger brethren.

The latest Wall Street Journal Small Business Report.

Private equity firm Fortress Investment Group LLC is hiring former Fannie Mae CEO, Daniel Mudd, to be its CEO.

South America:

Ousted Honduran President Manuel Zelaya remains in talks to return to his country.


Virgin Atlantic admitted to price fixing with British Airways this week but will not face charges.

UBS' saga with the IRS continues in a Miami federal court.

Britain said that it will send 140 additional troops to Afghanistan, as death tolls have climbed in the country during the past few months.

The EU parliament picked former Polish Prime Minister Jerzy Buzek as its first Eastern European leader.

Europe's proposed regulations on alternative investments could provoke firms to flee to more investor friendly countries.

Russia is diluting alcohol ads in an attempt to fight alcohol abuse.

McDonald's is leaving London for Geneva in a growing move of U.S. companies to take advantage of Switzerland's preferential intellectual property laws.

American Express has suspended pension payments in the U.K. in order to cut costs.


Nigerian militants launched an attack on a Lagos oil dock this week.


Protests continued in Iran over the country's recent corrupt election.

A blast in Jakarta killed at least nine people this week, raising fears in one of the largest Muslim communities in the world that Western businessmen remain worldwide targets.

Kazakhstan is the latest country dealing with the credit-default-swap crisis.

Former Sinopec chairman Chen Tonghai was convicted and sentenced to a suspended death sentence for taking $28 million in bribes during his tenure, making him one of the most prominent officials from a Chinese state company to be sentenced for such a crime.

Little known Geely Holdings Group is the leading contender for Ford Motors Co's Volvo unit, a move that could further solidify the top 10 Chinese car manufacturing company.

China approved a record $6.2 billion IPO of China State Construction Engineering Corp.

Hong Kong is drawing a new wave of IPOs, as companies rush to capitalize on new liquidity and rising hopes of a Chinese recovery but institutions remain skeptical of the rush into new equities.

China Eastern Airlines is acquiring Shanghai Airlines.

The proposed merger of Kirin and Suntory Holdings, two of Japan's leading brewers, is likely to challenge Japan's anti-trust law.

Japan's Liberal Democratic Party is bracing to be ousted from power in the country's August national election.


Fitch reiterated New Zealand's sovereign credit rating at AA+ but downgraded its outlook to negative from stable.


The bust in commodities earlier this year is causing companies such as Rio Tinto to downsize their global ambitions, this, at a time when the mining giant is attempting to merge with one of its largest rivals, BHP Billiton, as well as one of the Canada's largest aluminum producers, Alcan. The potential merger has created a lot of tension between the firm and China as bribery allegations have now recently emerged.

China announced plans to sell some of its soyabeans and corn reserves this week, creating a weak market for the commodities.

Data indicates a cooling in the oil market.

Managed futures strategies are performing poorly amid trading volatility.

City dwellers have turned to gardening to fight the ills of the downturn.


July 20th marks the 40th anniversary of the 1st landing on the moon, one of the most historic events in the history of mankind. Unfortunately, NASA admitted this week that the agency somehow "taped over" man's first steps on the moon. An incident certain to raise the voices of those that maintain that the event never occurred.

Steven Spielberg is close to signing a $825 million financing deal for his new film venture, only nine after he began looking for funding amidst one of the worst funding markets in recent Hollywood history.

Latest Barron's Up and Down Wall Street.

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