With the Stock market recovering anywhere from 50% to 75% of its 2008 losses, depending on what index you are looking at, and analysts declaring a bottom is in for equities and the worst of the subprime fallout has hit, one may expect some number to back those statements up.

Unfortunately none were forthcoming on the eve of the Fed’s announcement on interest rates. Tuesday the S&P Case-Shiller Home Price Index for February showed continued weakness in the housing sector.

“There is no sign of a bottom in the numbers,” said David M. Blitzer, Chairman of the Index Committee in a release. “Prices of single family homes continue to drop across the nation,” Blitzer added.

Continue reading ‘Bad data’ »

The April 27 Sunday New York Times had an incredible article on Robert Rubin, former Treasury Secretary under President Bill Clinton and former co-chairman of Goldman Sachs. Oh, and yes, currently is on the board and is chairman of the executive committee at Citigroup, which has lost billions of dollars in the recent mortgage mess. The question asked in the article was, Where was the wise man?

Rubin has always been brilliant, perhaps one of the smartest men on the street and in politics. But he has been noticeably absent during the Citigroup crisis, and this article describes his role at Citigroup and other aspects of his career.

It’s a couple insights that deal with the futures industry that make this article especially interesting.

Continue reading ‘Wise man no more’ »

Based on the Fed Funds futures traded at the Chicago Board of Trade, the market forecasts that the Federal Open Markets Committee (FOMC) of the Federal Reserve will cut the Fed funds rate 25 basis points to 2% at its April meeting, which concludes on April 30.

Based on the prices of distant Fed Funds contracts, this will be the last rate cut of the current easing cycle and the Fed will begin tightening rates beginning with a quarter percent increase back to 2.25% at the meeting ending on Oct. 29 or at the December meeting.

Continue reading ‘The Fed’s last hurrah?’ »

The National Futures Association (NFA) on Thursday filed a Member Responsibility Action (MRA) against Last Atlantis Capital Management LLC (LACM). LACM is a Virgin Islands based Commodity Trading Advisor/ Commodity Pool Operator, which also has offices in St. Charles IL, where the CTA/CPO previously was registered as Sjo Inc.

The MRA prohibits LACM from soliciting or accepting any customer or pool participants’ funds for Last Atlantis Partners LLC, LACM Proprietary Options, Share Class O. Additionally, the MRA prohibits LACM from disbursing or transferring any funds of customers or participants in Last Atlantis Partners LLC, LACM Proprietary Options, Share Class O without prior NFA approval and from placing trades on behalf of Last Atlantis Partners LLC, LACM Proprietary Options, Share Class O, except to liquidate existing positions.

Continue reading ‘Sjo me the money, LACM’ »

Yesterday in Washington, the Commodity Futures Trading Commission (CFTC) held a forum to discuss extreme volatility and price discovery in the ag markets. Representatives from various ag producers were up in arms about increased volatility and the increase of speculative money coming into the market. Mark Keenum of the U.S. Department of Agriculture noted, “increased volatility in futures markets and sharply higher prices have led to higher margin requirements and increased cost of hedging. Cotton shippers and some grain elevators are no longer bidding for future delivery because of risks and costs associated with maintaining hedges. The increasing disconnect between traders and speculators has raised fears that cash and futures markets will face convergence problems if the trend intensifies.”

CFTC Acting Chairman Walt Lukken said the agency is treading carefully on its consideration to raise spec limits for ag commodities. “Given current market conditions and the uncertainty surrounding additional speculative money on these markets, I will be very cautious about moving forward with such initiatives at this time,” Lukken said. The producers at the forum were very much against increasing spec limits. John Popp of the Independent Bakers Association said increasing spec limits puts too much power into the hands of speculative traders. While CME Group is for raising spec limits, CME Group Vice Chairman Charlie Carey said it does advocate the deferred consideration of increases by the CFTC. “We don’t want to be accused of making a situation worse…we understand the marketplace is in a tough spot,” Carey said.

Continue reading ‘CFTC holds ag roundtable’ »

CME Group had a bad day Tuesday despite releasing first quarter earnings that showed an 88% increase in total revenues from first quarter 2007. CME stock at one point was down $63.24, a little more than 12%, before settling $40 lower on the day. See the street expected revenue to grow by $4.81 million in the first quarter not included certain tax benefits and it turns out that it grew by only $4.67 million.

Contrast this with Citigroup. On Friday Citi reported losses of $5 billion for the first quarter with additional subprime related writedowns of $12 billion, but managed a significant rally. See they exceeded expectations.

Continue reading ‘Expectations game’ »

One of former Refco president Tone Grant’s defense attorneys noted in court documents transcribing the discussions the day the jury returned a verdict that a phantom mark on the jury verdict form, caused due to printing, was in the guilty box, and was a “bad omen,” he said. And though he was right, perhaps a worse omen for his client was that two Refco executives Phil Bennett and Robert Trosten had pled guilty to fraud charges.Download file

Tone Grant, often described as the All-American guy who played football at Yale and served in the Marine Corps., was found guilty on all counts of defrauding investors of $2.4 billion. Download file Another bad omen for Grant, when he is sentenced Aug. 7, 2008, is that in final comments the trial judge thanked the jury as being “a really terrific jury.” No doubt, the judge agreed with the verdict.

The sad story of Refco still has more to go as Mayer Brown’s Joe Collins is up next for trial.

The somber news for investment banks continued today with Merrill Lynch’s dismal first quarter earnings report. The investment bank reported a $1.97 billion net loss and net write-downs totaling $1.5 billion, and said it would cut 2,900 more jobs. Compared to some other investment banks’ woes this quarter, though, Merrill doesn’t come off looking quite as bad – UBS reported a $12 billion loss and $19 billion write-down in Q1 (after which its chairman stepped down), and Deutche Bank wrote down $3.9 billion in the first quarter.

While banks are recording massive write-downs due to the subprime meltdown, hedge fund managers, like John Paulson, number one on Alpha Magazine’s 2007 ranking of highest-paid hedge fund managers, are making billions shorting the subprime market. In 2007, Paulson, who also topped Forbes‘ list of Wall Street’s Top 20 Earners for 2007, earned $3.7 billion shorting the subprime market. Seventeen of those who made Forbes’ top earners list are hedge fund executives.

The Financial Times is reporting that Nymex has set a June 3 date for a member meeting to discuss Nymex bylaw 311-G, which in effect says that that should Nymex end floor trading for a listed product, or Nymex list it only for electronic trading, or if 90% of the volume is traded electronically, members would be entitled, in perpetuity, or until the exchange no longer lists the product to trade electronically, to whatever is greater: 10% of the gross revenue or 100% of the additional fees or surcharges.

As a thought experiment, substitute “no longer exists.” for “no longer lists…”

See page 18 of the bylaws.

And another thing…

Continue reading ‘Nymex: The Simple things you see are all complicated…’ »

With the disconnect between logic and market activity being well established at this point, this headline may be redundant but several items need to be reported at least for posterity sake.

Today the Dow Jones Industrial Average rallied more than 250 points after continued signs of inflation and housing troubles. Yesterday the Producer Price Index for March was released, showing an increase of 1.1%. Of course the PPI minus food and energy was up only 0.2% for those of us who do not eat or use energy. The expectations for the overall number was 0.4%, which makes you wonder what planet the various economists who make up those expectations live on. Year over year the PPI is up 6.9%. Food and energy are excluded, we are told, because of their volatility but there is really no justification for excluding them from yearly figures. Crude oil, by the way, hit $115 today.

Today’s Consumer Price Index (CPI) rose 0.9% without seasonal adjustments, 0.3% including seasonal adjustments and 0.2% minus food and energy. I guess the people who compile these numbers figure that Americans won’t think prices are going higher if they tell them different.

Continue reading ‘More bad news: Time to buy’ »