Jun 6, 2012

Here Comes the Fed!

Equity markets are getting a bid in spite of deteriorating economic results and conditions.  Why?  Because the weaker than expected economy is raising the odds that the Fed will step in with additional stimulus.  Operation Twist officially ends at the of this month, however, several Fed officials have been out on the stump saying it could be extended and that the Fed has plenty of firepower left. 

Despite weak performance since achieving great fame from his bets against sub-prime, hedge fund manager John Paulson is in the headlines once again.  Of course his performance and singular focus betting against the US housing market has become legendary on Wall Street, and with that great success comes rewards.  Paulson has received billions in compensation over the past few years as assets under management in his funds has exploded.  Last week he made headlines by spending $49 million on a house in Aspen, the largest residential property in the Colorado town.  The 55K square foot main house sits on a 90 acre piece of property that was initially listed for $135 million. 

Can the Euro go up?  According to economist Joseph Stiglitz, the currency is bound to go up once the weaker countries exit the currency.  That will increase the impact of Germany and France on the currency, and ultimately lead it much higher. 

Spain has appealed to the EU for additional financial support.  Treasury officials are complaining about being locked out of credit markets due to rising interest rates.  Treasury Minister Cristobal Montoro feels the “European mechanism should be used to recapitalize Spain’s banks.”

There are reports that Cyprus is in financial trouble and may be seeking a Eurozone rescue.  The island nation’s debt was downgraded last month due to concerns about Cyprus’ banks having high levels of exposure to Greek debt. 

Goldman Sachs (GS), the fifth biggest US bank as measured by assets, has been letting a small number of employees go after weaker than expected revenues have impacted profitability. 

The JOBS Act loosens financial reporting and corporate governance rules for “emerging growth companies.”  It appears that blank-check companies and SPACs, shell corporations with no operations, have been the biggest beneficiaries of this new set of rules.  It always amazes me that no matter how well-meaning a rule from Washington might be, the unintended consequences always seems to outweigh the benefits. 

Bank of America (BAC) executives may be in some well-deserved hot water after documents purportedly show that senior executives of the bank knew of the mammoth losses at Merrill Lynch prior to the shareholder vote in 2008 that approved the $50 billion takeover of Merrill.  Whoops. 

Here’s a news flash:  the US Comptroller of the Currency and a Deputy Treasury Secretary are ready to tell lawmakers that risk-management practices at major financial institutions are questionable.  Really?  Didn’t we figure that one out already?

The Kings, need I say more?

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Have a great day


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