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Criminal charges being prepared against former Fed regulator and junior Goldman Sachs executive
Capital Markets
<p>Federal prosecutors are preparing criminal charges in a case of leaked information passing from the New York Fed to a former employee of the regulator then working at a major bank. Under a tentative deal first reported in The New York Times, Goldman Sachs would pay a $50 million fine, be banned from a certain type of bank consulting for three years and face additional restrictions regarding how it handles sensitive regulatory information.<br /> Former Fed employee assigned task to work with bank he once regulated, while supervisor claims no knowledge regarding leaked information<br /> Rohit Bansal first worked at the New York Federal Reserve Bank for seven years before he took a job at Goldman in 2014, where he was assigned to consult with the same banks he regulated while at the Fed.  He is accused of accessing confidential information about a bank client he supervised as a regulator.</p> <p>Despite the fact that Bansal had emailed his supervisor the documents he had placed some of the leaked documents in question to his supervisor, Joseph Jiampietro, lawyers briefed on the matter said he will not face criminal punishment. Goldman fired Jiampietro, a former senior adviser to former Federal Deposit Insurance Corporation Chair Sheila C. Bair, for failure “to properly escalate” the issue internally. Jiampierto claimed to have never looked at the documents and was unaware they were improperly obtained.<br /> After recusing himself from working with the bank, supervisors said to pressure junior Goldman banker to work with client<br /> Goldman’s internal compliance process, which Bansal participated in, instructed employees not to use any material from a previous employer, but such clear instructions were not part of the New York Federal Reserve’s compliance procedures. Despite the confusion, Bansal’s recused himself from working with the one bank he was now assigned to consult with at Goldman, but claims he felt pressured to remain on the account when his supervisors encouraged him to work behind the scenes for that New York bank in question, the lawyers told the New York Times.<br /> Goldman Spokesman Michael DuVally told the New York Times the bank had “reviewed our policies regarding hiring from governmental institutions and have implemented changes to make them appropriately robust.” As soon as the incident was discovered it was reported.<br /> Goldman’s offer fails to match the regulator’s bid on a fine, as Bansal being shunned from banking industry<br /> Goldman initially offered to pay the New York State Department of Financial Services a $3 million fine, but found the bid-ask spread on the deal to be much higher in accepting a $50 million penalty, admission that it failed to supervise Bansal alongside a proposed three-year suspension from involvement in certain consulting deals with banks in New York State, the report said..</p> <p>The Federal Reserve is further expected to permanently bar Bansal from the banking industry, a tactic that was recently advocated on the opinion pages of the New York Times. The Fed has barred six people so far this year for infractions, a significant increase from the three preceding years, the report noted.</p> <p>Bansal’s lawyers are appealing for leniency from criminal charges, as much of what Bansal did was categorized as “fair game.”</p> <p>The Bansal case i</p>
Daily Scan: Stocks slip slightly; Massachusetts regulators go after Fidelity
Capital Markets
<p>Updated throughout the day</p> <p>October 26</p> <p>Stocks slipped slightly Monday, with the Dow slipping 0.1% with the fall of oil prices. The Nasdaq gained 0.1%, and the S&amp;P 500 lost 0.2%. Oil prices fell to $43.85/barrel. Earnings for the third quarter are looking shaky -- especially for manufacturing firms where demand is slowing. Companies continue to indulge in share buybacks to boost earnings per share comparisons. Howard Silverblatt, senior index analyst at S&amp;P Dow Jones Indices, reports that nearly one-quarter of the companies that have published earnings so far (172) have bought 4% of their outstanding stock. Leading the buyback policy: Microsoft, which absorbed $4.8 billion in stock.  Apple, which reports Tuesday, bought back $10 billion last year. Also reporting this week: UPS, another economic bellwether, Exxon, Twitter, Alibaba, and more. ... The Federal Open Market Committee convenes. Goldman Sachs says no rate hike until December, but only with 60% confidence. Before the Fed policymakers convene on Tuesday and Wednesday, they will get word on new home sales in September. Look for a slight drop to 549,000 from 552,000 in August, seasonally adjusted. The other big numbers: third quarter GDP on Thursday and personal income and spending on Friday.</p> <p>Here’s what else you need to know:</p> <p>Fidelity in trouble for "unethical" behavior. Massachusetts regulators filed a complaint Monday against Fidelity Investments for allowing unregistered investment advisors to trade. Fidelity says that it does not believe it violated any laws or regulations. One unregistered advisor allegedly received about $732,000 in advisory fees over 10 years to conduct 28,958 trades for 20 Fidelity customers. Wall Street Journal</p> <p>Valeant defends itself. The big pharmaceutical company said on a conference call Monday that it had found "no evidence whatsoever" of any illegal activity in the company. It also created a new board committee to review the specialty pharmacy relationships it disclosed last week, as well as the report of wrongdoing from the Wall Street Journal. Wall Street Journal</p> <p>White House, Republicans near deal on budget. The deal would be one of John Boehner's last important pieces of law to go through the House before he resigns in two weeks as leader. The agreement would boost the federal debt limit so the government doesn't have to shut down. It still needs to get support from Democrats and a few Republicans. Wall Street Journal (paywall)</p> <p>Seventh high school football player dies. Andre Smith died of "blunt force head injuries to due a football accident" in Illinois Friday. The 17-year-old senior is the seventh high school player to die this year. Last year five students died of causes directly linked to football, and six others died of indirect causes, such as heat stroke or water intoxication. CNN</p> <p>University of Mississippi to remove Confederate flag. Ole' Miss has stopped flying the state's flag on campus because it includes the stars and bars. Students at the universit</p>
World markets weekend update: A boost from central banks
Capital Markets
<p>All eight indexes on our world watch list posted gains over the past week, with central bank policy as a key driver. On Thursday the ECB's president hinted at another stimulus package, and on Friday the Chinese central bank cut interest rates for the sixth time in 12 months. The two Eurozone indexes were the week's biggest winners, the DAX up 6.83% and the CAC 40 up 4.70%. The Nikkei finished in third place with a 2.92% advance and the S&amp;P 500 finished fourth with a 2.07% gain.</p> <p>Here is an overlay of the eight for a sense of their comparative performance so far in 2015.</p> <p>As for the Shanghai Composite, below is a log-scale weekly chart illustrating the bubble that peaked in 2007 and the bubble that started last year. The index is now down -33.9% from its June 12 peak but well off its -43.3% interim low set on July 8th. Optimists might identify the interim low as the beginning of a new bull market. But a comparison with the failed rallies during the crash that began in 2007 suggests a less encouraging forecast.</p> <p>&nbsp;</p> <p>A Closer Look at the Last Four Weeks</p> <p>Read more at Advisor Perspectives.<br /> Photo: Indigo Skies Photography</p>
Beware Asian high yield bond covenants
Capital Markets
<p>Moody's Investors Service reckons that the financial reporting covenants for Asian high-yield bonds are weak. It’s yet another red flag to the Fed as it mulls over its interest rate decision.</p> <p>"Currently, for the vast majority of Asian high-yield bonds, the company only needs to provide the trustee with financial reports after they are filed with the relevant stock exchange. Therefore, if a company fails to file such reports with the relevant exchange, there is no breach under the indenture," said Jake Avayou, a Moody's vice president and senior covenant officer, at the release of report this morning. (subscribers only)</p> <p>"By comparison, in the US, as a result of litigation, high-yield bond covenants expressly tie the delivery of financial reports to the filing deadlines of securities exchanges, while Asian covenants have not done the same and maintain ambiguous language that is not protective for bondholders," says Avayou.</p> <p>Investors beware.<br /> Photo: Rutger van Waveren</p>
Other losers from PBOC actions
Capital Markets
<p>The PBOC did more than cut key lending rates to stimulate China's economy. It also finally removed the regulatory cap on the deposit rates banks can offer savers. This means that alternative money market funds no longer enjoy an advantage over conventional bank providers.</p> <p>“It's well known that Baidu and Alibaba (along with others like Tencent) have substantial money market operations inside China. Similarly, it's well known that the uptake of these products has been driven by the pitifully low interest rates savers get at banks in that country. Today [October 23] the Chinese government announced its latest changes in interest rates, including the statement that they will now lift that regulatory cap on the interest rates that bank accounts can offer. This is obviously bad news for the strategic advantages of those money market funds,” writes Forbes’s Tim Worstall.<br /> Photo: keso s<br /> &nbsp;</p>
China rate cut good for economy, bad for banks
Capital Markets
<p>The PBOC’s 25 basis point (bp) cut in loan and deposit bank interest rates and a 50bp reduction in the RRR (required reserve ratio) immediately boosted Chinese stock prices. Markets expect this move -- the fifth so far this year -- to invigorate economic growth by releasing about Rmb750 billion of liquidity. </p> <p>But, there is a flip side. Barclays warns that bank earnings will come under increasing pressure.</p> <p>“The banking sector’s earnings growth has slowed to 2% in 1H15 on narrowing NIM [net interest margins] and higher credit charges. We see further pressure on NIM as well as earnings growth upon the rate cut and abundant liquidity in the banking system,” Barclays research team write in a note.</p> <p>“2009 was the last time China aggressively cut [rates] to stabilize the economy, and banking sector earnings dropped from 31% in 2008 to 15% in 2009. In addition, during this round of rate cuts which started from Nov 2014, sector profit growth slowed to 2% in 1H15 from 10% in 2014 on narrowing NIM as well as higher credit charges. With the recent loosening measures from the PBOC, we see further earnings pressure on China banks.”</p> <p>&nbsp;</p> <p>&nbsp;<br /> Photo: Stephen Chipp<br /> &nbsp;</p>
The seven biggest lies told (and believed) about gold
Capital Markets
<p>It’s hard to say which lie about gold is the biggest whopper.</p> <p>Many widely held beliefs about gold are lies – propaganda hammered home to have us believe the only true measure of wealth is government-issued debt.</p> <p>Big Lie #1: Gold is a barbarous relic.</p> <p>Repeated for decades, this misquote of 20th century socialist economist John Maynard Keynes perpetuates a lie exploited as an almost biblical prophesy of gold’s demise.</p> <p>What Keynes actually wrote in 1923 was “the gold standard is already a barbarous relic.” Big-spender Keynes was advocating legislation to demolish gold’s restrictive power over government spending.</p> <p>While the classic gold standard (gold backing paper money) no longer officially exists, governments buy and sell gold around the clock.</p> <p>Their economic prestige is still measured by the tonnage of gold they claim to possess.</p> <p>What’s true is every individual holding gold has adopted his own personal gold standard. They disagree that gold – and the gold standard – are “barbarous relics.”</p> <p>Big Lie #2: Gold pays no interest.</p> <p>This silliest lie of all is meant to portray gold as lower class. But no wealth instrument pays interest until transferred to a counterparty. Gold handed to a counterparty does pay, but it’s not called “interest.” Central bankers know that calculation as the Gold Lease Rate (GLR), where gold serves as collateral to lower interest costs when borrowing dollars in “gold swaps.”</p> <p>Swaps and leases are often code for selling.</p> <p>What’s true is your dollars don’t pay interest at all, until you give away your controlling possession to a counterparty – like putting your cash in a bank or loaning it to a relative. And the interest you’re paid for taking such risk is heading to zero or negative.</p> <p>Big Lie #3: Gold will be confiscated, just as in 1933.</p> <p>This is the lie most useful to government because it has frightened so many away from gold. The “confiscation” was actually a paid-for expropriation, which outlawed “hoarding,” not owning, gold. Franklin Roosevelt left millions in gold legally in Americans’ hands. His order was largely ignored anyway.</p> <p>FDR’s aim was forcing Americans to recognize only fiat paper as money, because he couldn’t print gold for his government spending spree. President Gerald Ford reversed FDR’s order in 1974.</p> <p>What’s true is Washington has instead published plans to confiscate your cash in your bank accounts without notice.</p> <p>Big Lie #4: Gold is not money.</p> <p>History is littered with the carcasses of collapsed paper currencies, right up to today. In every instance, gold and silver stepped in to restore confidence as accepted and desired money.</p> <p>Across Asia, gold and silver are commonplace currencies. Utah and Texas have recently taken steps to legalize gold and silver as acceptable money. Other states, terrified of the Federal Reserve’s money printing and Washington’s reckless spending, are studying their examples.</p> <p>What’s true is gold and silver have been money for thousands of years, despite Ben Bernanke’s dishonest "gold is not money" testimony to Congress in 2011.</p> <p>Big Lie #5: Gold is useless in a crisis because merchants cannot make change.</p> <p>History shows in every paper money collapse, barter systems always emerge. Gold and silver make perfect barter, accepted by most, including merchants selling goods and services. And gold and silver are widely available in convenient fractional sizes.</p> <p>In a dollar collapse, yesterday’s price tags won’t matter, since prices won’t mean much in dollar terms. Customers holding gold and silver will determine their metal’s value an</p>
Weekend Scan: Stimulus still in play; Apple, Alibaba, Twitter to report quarterly earnings
Capital Markets
<p>Greetings, Here we are again. The Federal Open Market Committee convenes once more to review the U.S. economy and determine whether it is time to hike rates. Odds makers, say no. December is the month. Goldman Sachs says so, but only with 60% confidence. Stocks rallied last week as investors placed bets on more easy money -- both the U.K. and China offered more stimulus giving a new buzz to stocks, which are no longer in correction territory. Before the Fed policymakers convene on Tuesday and Wednesday, they will get word on new home sales in September. Look for a slight drop to 549,000 from 552,000 in August, seasonally adjusted. The other big numbers: third quarter GDP on Thursday and personal income and spending on Friday. And, of course, this is another big week for earnings, featuring Apple, Twitter, Alibaba, Yelp, GoPro, Marriott International, and more.</p> <p>Take one: Merrill Lynch says worst of global turmoil behind us. In a note on third quarter GDP, the investment bank says the strong dollar, weakness overseas, and an inventory correction will translate into lower growth this past quarter. Merrill is lowering its outlook to 1.2% from 2% growth. The government reports GDP on Thursday. Calculated Risk</p> <p>Take two: Alibaba results cast a shadow over China consumer spending. Chinese e-commerce giant Alibaba Group’s second-quarter revenue growth is likely to have slumped to half the year-earlier rate, undermining hopes consumer spending will temper a slowdown in the world’s second-biggest economy. Reuters</p> <p>Apple, Twitter lead the earnings hit parade. Analysts are expecting good news from Apple based on early word on sales of the iPhone 6s and 6s Plus. Zacks expects Twitter to beat earnings -- but concern will center around user growth, which has been fading. MarketWatch, Zacks</p> <p>Valeant on the hot seat. The pharmaceutical company saw its stock drop more than 20% last week after Citron Research accused it of accounting slights-of-hand. At 8 a.m. ET on Monday, the company is holding a conference call with analysts. Top questions will surround the specialty pharmacies selling Valeant drugs. Until last week, no one even knew these pharmacies existed. Business Insider</p> <p>Walgreen's halts expansion of Theranos blood test centers. The pharmacy and key partner met with the specialty lab last Thursday after The Wall Street Journal ran a lengthy piece revealing that it used its proprietary system on just one type of blood test. The Verge</p> <p>Calling all bulls. Stock market breadth has improved since August 24th, when ETFs when beserk and investors dove into their bunkers. More than three quarters of S&amp;P stocks are trading above their 50 day average. The Short Side of Long</p> <p>Scary retail sales for Halloween bad omen for Christmas. Halloween sales are expected to hit $6.9 billion this year. Which sounds like a lot. It is, BUT, it's still the lowest since 2011 and 7% lower </p>
Daily Scan: Bulls lose steam; Fifth plenum begins
Capital Markets
<p>Updated throughout the day</p> <p>October 26</p> <p>Despite rushing straight out of the gate, Asian equities ended mixed on Monday as worries over China’s economy led traders to start taking profits. Hong Kong’s Hang Seng Index dipped 0.15%, while China’s Shanghai Composite and Japan’s Nikkei Average – after climbing as high as 1.25% earlier in the day – finished the session up 0.50% and 0.65% respectively. Here’s how the others began the week:</p> <p> Hang Seng China Enterprises Index: +0.05%<br /> Shenzhen Composite: +0.68%<br /> Straits Times Index: +0.55%</p> <p>Over in Europe, the bulls seem to be losing steam as well. Germany’s DAX – up 0.13% – is the only one currently in positive territory, while France’s CAC and the U.K.’s FTSE are down 0.51% and 0.28% respectively.</p> <p>Here’s what else you need to know:</p> <p>China leaders meets to discuss financial reform. The Central Committee, the largest of the Chinese Communist party's elite governing bodies, is gathering until Thursday to finalize the 13th Five-Year Plan, a blueprint for economic and social development between 2016 and 2020. Reuters</p> <p>South Korea man dies of Mers virus 3 months after last death.  A South Korean man died of complications from Middle East Respiratory Syndrome (Mers) Sunday, in the first death linked to the virus in the country for more than three months. South China Morning Post (paywall)</p> <p>Child rapists should get the snip, says India court.  A court in India has said child rapists should be castrated as existing laws had proved to be "ineffective and incapable" in protecting children. Justice N Kirubakaran of the Madras High Court made the remark while rejecting a plea by a British national accused of sexually abusing a boy. BBC</p> <p>IMF to include China's yuan in benchmark currency basket. International Monetary Fund staff are set to give the all-clear for China’s yuan to be included in the lender’s benchmark currency basket, laying the groundwork for a favorable decision by policymakers.  The IMF’s executive board is scheduled to decide in November. South China Morning Post (paywall)</p> <p>Scores injured in HK hi-speed ferry accident. At least 124 people were injured when a high-speed ferry travelling to Hong Kong from Macau hit an object in the water, say officials. The ferry, with 174 passengers on board, lost power close to Lantau island, at about 18:00 local time and began taking on water. BBC</p> <p>Guatemala elects comic for president. Former TV comedian Jimmy Morales, who has no experience in government, won Guatemala's presidential election in a landslide on Sunday after a corruption scandal toppled the last president. Reuters</p> <p>Alibaba results cast a shadow over China consumer spending. Chinese e-commerce giant Alibaba Group's second-quarter revenue growth is likely to have slumped to half the year-earlier rate, undermining hopes consumer spending will temper a slowdown in the world's second-biggest economy. </p>
Bear Alert: NYSE data show stocks, margin debt rate of change turned negative in September
Capital Markets
<p>Are we on the cusp of a major bear market? Here's one indicator that will feed hungry bears via Jesse Felder of bear-market clean-shaven fame:<br /> The NYSE margin debt numbers for the month of September were released today revealing a very significant milestone for the stock market. As of the end of September, both stocks and margin debt have seen their 12-month rate of change turn negative after margin debt-to-GDP had risen above 2.5%. The last time this happened was April of 2008, as the stock market crash during the financial crisis was just getting started. The time before that was December, 2000, the very beginning of the dotcom bust.</p> <p>The Felder Report<br /> Photo: Rob Hurson</p>