July 5th, 2012
LIBOR (the London inter-bank offered rate) scandal that involves Barclays, a 300-year-old British bank, is beginning to assume global significance. Over the past weeks damning evidence has emerged, in documents detailing a settlement between Barclays and regulators in America and Britain that employees at the bank and at several other unnamed banks tried to rig the number time and again over a period of at least five years. And worse is likely to emerge. Investigations by regulators in several countries, including Canada, America, Japan, the EU, Switzerland and Britain, are looking into allegations that LIBOR and similar rates were rigged by large numbers of banks.
The LIBOR that the traders were toying with determines the prices that people and corporations around the world pay for loans or receive for their savings. It is used as a benchmark to set payments on about $800 trillion-worth of financial instruments, ranging from complex interest-rate derivatives to simple mortgages. The number determines the global flow of billions of dollars each year. Yet it turns out to have been flawed.
On July 3rd, Barclays PLC Chief Executive Robert Diamond caved in to intense pressure to quit after the U.K. bank became embroiled in a bitter political row over its role in the Libor rate-rigging scandal. Robert Diamond resigned amid a deepening dispute about whether the Bank of England pushed the lender to submit artificially low Libor rates during the financial crisis.
As many as 20 big banks have been named in various investigations or lawsuits alleging that LIBOR was rigged. The scandal also corrodes further what little remains of public trust in banks and those who run them. Read more "LIBOR Rigging"
May 17, 2012
Facebook Inc. set its final price at $38 a share, as the social network gets ready for its initial public offering on Friday. At $38 a share, Facebook is valued at $104 billion, the biggest-ever valuation by an American company at the time of its offering.
Facebook is set to raise $16 billion from its IPO, becoming third-largest public offering in the history of the United States, behind General Motors and Visa.
On Friday, Mark Zuckerberg, the founder, is set to ring the opening bell for the Nasdaq from Facebook’s headquarters in Menlo Park, Calif., surrounded by executives, engineers and other employees. Shares of Facebook, which will trade under the ticker FB, will start selling to the public later in the morning. Read more "Facebook Raises $16 Billion at IPO Price $38"
May 12, 2012
JPMorgan Chase CEO Jamie Dimon on Thursday revealed that the banking giant lost a $2 billion due to a massive trade that went sour, and that the losses could climb by another $1 billion in the coming days.
J.P. Morgan Chase & Co. told traders several months ago to make bets aimed at shielding the bank from the market fallout of Europe’s deepening mess. But instead of shrinking the risk, their complicated bets backfired into losses of as much as $200 million a day in late April and early May, culminating in the company’s announcement Thursday of more than $2 billion in losses. Read more "JPMorgan's appalling $2 billion loss"
March 20, 2012
The Linsanity – the excitement over the unheralded Lin – started in February 2012 when Lin unexpectedly led a winning streak by New York Knicks while being promoted to the starting lineup. The Linsanity influence resonates beyond basketball court. It penetrates stock market, sales, and marketing.
Jeremy Lin is a Harvard-educated, undrafted point guard for the New York Knicks who seemingly emerged from nowhere to become an international phenomenon. He became a fan favorite in early 2012 after scoring at least 20 points in five straight games, all of them Knicks victories. He is also the first N.B.A. player to have at least 20 points and 7 assists in each of his first four starts. New York Knicks had a 7–0 record after Lin started receiving major playing time, 6–0 with him starting.
Since Linsanity breakout game through Friday, Madison Square Garden Co., parent of the Knicks, had seen its shares advance 13% since early February, compared with a 4.4% increase of the S&P over the same period.
Since Feb. 4 breakout game, sales at online Knicks-linked stores — which carry about 50 Lin-related items — have surged forty fold, while sales at the arena are up 70%, according to management, with Lin-related gear accounting for about half of online sales and about a third of in-arena sales. Read more "Linsanity’s Economic Power"
March 14, 2012
The Federal Reserve said 15 of the 19 largest U.S. banks pass stress tests, or Comprehensive Capital and Analysis Review (CCAR), as they could maintain adequate capital levels even in a recession scenario in which they continue paying dividends and buy back stock. Four banks, including Citigroup, have more work to do and need more capital.
The stress tests results show that nearly three years of economic expansion have helped U.S. banks raise profits, rebuild capital, and increase liquidity after the collapse of Lehman Brothers Holdings Inc. in 2008 nearly toppled the financial system. Read more "15 banks pass stress tests"
February 28, 2012
In the past decade the debts of the European Union (E.U.) countries have been rising to dangerously high level causing the current Europe's debt crisis. Greece and Italy have had high levels of debt since 2000. Now Greece and Italy are not the only countries in Europe with credit and debt problem. More than a half of the E.U. countries carry debts exceed the European Commission limit, which is 60 percent of gross domestic product (G.D.P.).
The European Union is made up of 27 countries, with one of the chief goals being to create a single market and integrate economies through shared regulations. Overseeing the E.U. is the European Commission, based in Brussels. Within the European Union are 17 countries that use the Euro as a common currency. This collective group of countries which use the Euro is called Eurozone.
Greece’s debt problems are not new. The country had high levels of debt, which are measured by debt as percentage of G.D.P., even as it prepared to join the euro zone in 2000. Italy and Belgium, too, have long wrestled with large debt loads. The debt-to-G.D.P. ratios of Greece and Italy have been dangerously high, which are 109% and 103% respectively, since 2000. Read more "Map of European Debt Crisis"
Ratings agency Standard & Poor's (S&P's) on Monday downgraded Greece's long-term credit rating to selective default from already junk-level CC grade. It is a result of a more than half of Greek debt write-off deal with private creditors that is an integral part of a second EU bailout of the country. Once the swap deal is carried out next month, the agencies are expected to upgrade Greece.
Greece became the first Euro-zone country officially to be rated in default, 13 years after the single European currency was adopted to strengthen the European Union.
S&P’s had said this month that it would consider Greece in default if it added "collective-action" clauses to its sovereign debt, effectively forcing all bondholders to accept a bond-swap offering. Greece has been seeking to avoid an outright default on its massive debt by negotiating a "voluntary" debt exchange with creditors. Read more "S&P Declared Default on Greece"
February 17, 2012
Facebook Inc., one of most popular social networking companies, is now in a quiet period where federal rules limit what company executives can say in public after it filed paperwork on Feb. 1 with the Securities and Exchange Commission (SEC) to raise $5 billion in an initial public offering (IPO).
The social networking site is just beginning a months-long effort that involves appeasing regulators, wooing investors, and dealing with endless amounts of paperwork before starting its stock market debut. While it will follow a familiar IPO pattern, this high-profile offering is under a microscope. In addition to SEC scrutiny, a high degree of interest is expected to come from the press, the blogosphere, and the investment community.
When arriving in the SEC’s computers, Facebook’s S-1 filing made its way to the Division of Corporation Finance and the desks of a lawyer and an accountant who specialize in the industry. These staffers will go through the document page by page, noting anything that might mislead potential investors, need more supporting evidence, or warrant further explanation. They bring their recommendations to a more senior lawyer and accountant who complete the SEC’s first comment letter, which typically lays out 50 to 100 queries that the company must address.
The SEC may challenge various aspects of the filing. Questions about how companies track and count their users have come up in several recent Internet initial public offerings. The issue could arise with this social networking site, which boasts 845 million active monthly users. Read more "Facebook IPO Process Road Map"
January 19, 2012
The Wall Street Reform and Consumer Protection Act of 2010, also known as Dodd-Frank Act (after its sponsors Rep. Barney Frank and Christopher Dodd) is only beginning to take effect. Big portions of the financial reform law are set to go into effect this year 2012.
Passed as a response to the 2007-2000s great recessions, the Dodd-Frank act is a United States federal law that places regulation of the financial industry in the hands of the government. The legislation, enacted in July 2010, aims to prevent another significant financial crisis by creating new financial regulatory processes that enforce transparency and accountability while implementing rules for consumer protection. Read more "Dood-Frank Act Simplified Guide"
January 13, 2012
Ratings agency Standard & Poor (S&P) downgraded the government debt of France, Austria, Italy and Spain on Friday, while keeping Germany's at the coveted AAA level. The downgrades deal a blow to the euro zone’s ability to fight off a worsening debt crisis.
The action may have more symbolic than fundamental financial impact but served as a reminder that Europe’s economic woes were far from over. But the downgrades may also be a blow to the euro zone’s ability to fight off a worsening debt crisis.
S&P ended France and Austria's AAA status by lowering their long-term rating by one notch, while downgrading Italy's and Spain's credit rating by two notches, Italy to BBB+ and Spain to A. The rating agency also cut ratings on Malta, Slovakia and Slovenia by one notch and Portugal and Cyprus by two notches. Read more "S&P cuts credit ratings for 9 Euro Zone Nations"
November 04, 2010
Stocks surged in the United States Thursday, Nov. 4, a day after the Federal Reserve’s decision to buy more government securities to stimulate the economy. the Dow was up 1.96 percent, at 11,437.84, while the Standard & Poor’s 500-stock index rose 1.93 percent, to 1,221.06.
Wednesday’s reaction to the Fed announcement was muted, although it was enough to send the Dow up 26.41 points on Wednesday to its highest close in two years. On Thursday, as investors absorbed the impact of the announcement, financial markets in Europe and Asia rose, and the dollar weakened. Read more "Stocks Surged to 2-Year High After Fed Decision"
November 4, 2010
Emerging markets criticized the Federal Reserve for its decision to pump more money into the U.S. economy, known as Quantitative Easing 2, a measure that they fear could escalate the worrisome flood of cash into fast-growing economies. Officials from countries like Brazil and Thailand threatened more measures to curb the flood of money that has pushed up currency values and fueled concerns that asset price bubbles might be in the making.
While long-term investments, are welcome ways of bolstering economic development, the capital influxes into emerging market stocks, bonds and property have increased rapidly in recent months, totaling more than $2 billion a day, according to estimates by DBS in Singapore.
The Fed said it will buy $600 billion of Treasuries between now and next June, at about $75 billion a month, although it also said it could adjust the amount and timing if need be. That was about what markets expected but far less than the $1.75 trillion of debt it bought between early 2009 and early 2010 in its first round of quantitative easing. Yet the second round of quantitative easing seems already to have exceeded the low expectations it has aroused. Since Ben Bernanke, chairman of the Fed, hinted at it at Jackson Hole on August 27th, markets have all done exactly what they should. Read more "Fed decision to pump money in quantitative easing 2 is criticized"
September 1, 2010
The recession officially ended in June 2009, according to the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), a group charged with determining when recessions officially begin and end.
This official end date makes the most recent downturn the longest since World War II. This recent recession, having begun in December 2007, lasted 18 months. Until now the longest postwar recessions were those of 1973-5 and 1981-2, which each lasted 16 months.
Recession and expansion dates are based on various economic indicators, including gross domestic product, income, employment, industrial production and wholesale-retail sales. The Business Cycle Dating Committee typically waits to declare that the economy has turned until well after the fact, when it has a longer track record of economic data to confirm a new trend. Read more "U.S. Recession Officially Ended in June 2009"
Government agencies, industry groups, and non-profit organizations generate a nonstop flow of statistics on the U.S. economy. Economic indicators provide real-time information on the direction of the economy as it relates to economic growth, inflation, jobs, and the health of the financial markets, according to economists.
Do you ever wonder what those reports really mean or why they're important to you as an investor?
Investors use the economic data to interpret current or future investment possibilities and judge the overall health of an economy. The key information to extract from these indicators is how far they differ from what was expected. Financial markets are forward-looking, and securities prices incorporate economists' consensus forecasts for economic growth, inflation, jobs, etc. Markets react to an indicator only when the actual release of that indicator comes above or below what was originally expected.
The best investors will utilize many economic indicators, looking for patterns and verifications within different sets of data. Some major economic indicators are regarded as to more likely influence the markets and so are widely followed include gross domestic product (GDP), consumer price index (CPI), and unemployment rate. The followings are short introductions of those primary economic indicators. Read more "Major economic indicators for investors"
September 18, 2008
Counterparty credit risk or risk of failure among large Wall Street dealers, measured by CDR Counterparty Risk Index, in the derivatives market surged to a new record Wednesday on concern the bailout of insurance giant American International Group hasn't eased market turmoil.
The CDR Counterparty Risk Index, which tracks averages of credit default swap (CDS) spreads of major credit derivative dealers, jumped more than 50 basis points to a record 430.8. A basis point is one hundredth of a percentage point. The index has more than doubled since last week. The CDR Counterparty Risk Index peaked at around 250 basis points during the Bear crisis.
CDS spreads on Goldman Sachs widened by more than 180 basis points to more than 600, while spreads on Morgan Stanley CDS also widened and now trade 16% "upfront”, CDR said.
In March, spreads on CDS tied to Bear Stearns surged to over 750 basis points, or more than $750,000 annually to insure against a default in $10 million of Bear debt over five years. At the time, many firms that had outstanding trades with Bear purchased credit protection on Bear itself because they were nervous about the firm’s ability to meet its trading obligations. Read more "Counterparty credit risk surged to new record"