Knight Capital Group's Ironic Imaginary Valuation

At $3.07 a share, after its 24% drop Monday, Knight Capital Group (NYSE: KCG) looks to be priced exactly right. That’s because, while it secured funding to stay afloat, it did so at great cost to legacy shareholders while admittedly saving what they had left. So I find it ironic that some are seeing KCG worthy of a higher value now. To me, that is amusingly anomalous to the mathematic malfunction that nearly erased the company.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Knight Capital Group

Knight Capital Group (KCG) secured a lifeline of $400 million in equity financing from a consortium of investors including Jefferies (NYSE: JEF), Blackstone (NYSE: BX), GETCO LLC, Stephens, Stifel Financial (NYSE: SF) and TD Ameritrade (Nasdaq: AMTD). In doing so, the company stayed afloat, yes, but it gave up 70% of equity, the equity of legacy shareholders.

Some are talking today about the franchise value of Knight, the potential gain for the new shareholders, and the ongoing opportunity for all parties moving forward. While it’s true the company avoided bankruptcy, the odds of it rising from here back to $10, representing a 233% gain, are equal to the odds that the company sported in July to rise from its price then of $10 to $33. In other words, the only thing that was saved was the $3 per share investors have left and the jobs of the executives and the employees of Knight. The potential of the company is probably unchanged despite whatever creative capital minds might construct to sooth the wound. What was lost, and it was lost, was $7 per share or 70% of capital for each legacy shareholder of Knight who not long ago saw quotes of $10 a share for their stock.

The stock is priced right according to the efficient market (in theory), but I would say from here there is more likelihood of downside, given the potential for shareholder lawsuits and regulatory penalty. Given the broad reaching impact of mankind’s colossal failures in finance, more recently made famous by algorithmic trading and also the mortgage security malfunction at the hands of Wall Street and the rating agencies, these latest algorithmic errors are likely to bring down the hammer of Capitol Hill once again. So, I would avoid Knight’s shares rather than imagine value where it is not.

Article should also interest Goldman Sachs (NYSE: GS), J.P. Morgan (NYSE: JPM), Citigroup (NYSE: C), Morgan Stanley (NYSE: MS), McGraw-Hill (NYSE: MHP) and Moody's (NYSE: MCO) investors. Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Support the Occupy Wall Street Protest Movement?

Supporters say “We are the 99%,” but critics say the group has much less than 99% of the nation’s support. We want to know how you feel about the Occupy Wall Street protest movement. Do you support it, or not, and why?

Do You Support the Occupy Wall Street Protest Movement?

The movement represents the frustration of blue collar, Main Street America, alongside much of white collar, impoverished to middle-class America, with Wall Street and much of corporate America and the advantages and power these elites wields in Washington DC. But some say the Occupy Wall Street movement is just a bunch of bums looking for a reason to party and raise a fuss. However, judging by how quickly and how far the movement has spread, with protests now running across most of metropolitan North America and Europe, it seems there’s solid issue and reasoning supporting it.

Due to my own very personal experiences with the evil side of Wall Street, its lying, cheating and stealing, which I hope to someday write about in an important book about the inner workings of Standard & Poor’s, I sympathize with the movement. I know why nobody has gone to prison over this financial crisis, and I’ll write about that here shortly, on a thread we’ll label “Occupy Wall Street”.

Personally, I was insulted by the Supreme Court decision that overturned the campaign finance limit legislation, an act that gave Wall Street and corporate manipulators an open spigot to fund and influence politicians. I’m also unhappy with job creation by corporate America, and I’ll write about the reason these companies choose to hoard cash and create jobs overseas, before helping to lift our economy at its core through domestic support.

Occupy Wall Street Video Playlist - Updated Regularly



SEE DEBATE TOPIC ARCHIVES

SEE OTHER "WALL STREET" OR "OCCUPY WALL STREET" ARTICLES

Article should interest investors in SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY), PowerShares QQQ Trust (Nasdaq: QQQ), ProShares Short Dow 30 (NYSE: DOG), ProShares Ultra Short S&P 500 (NYSE: SDS), ProShares Ultra QQQ (NYSE: QLD), NYSE Euronext (NYSE: NYX), The NASDAQ OMX Group (Nasdaq: NDAQ), Intercontinental Exchange (NYSE: ICE), E*Trade Financial (Nasdaq: ETFC), Charles Schwab (Nasdaq: SCHW), Asset Acceptance Capital (Nasdaq: AACC), Affiliated Managers (NYSE: AMG), Ameriprise Financial (NYSE: AMP), TD Ameritrade (Nasdaq: AMTD), BGC Partners (Nasdaq: BGCP), Bank of New York Mellon (NYSE: BK), BlackRock (NYSE: BLK), CIT Group (NYSE: CIT), Calamos Asset Management (Nasdaq: CLMS), CME Group (NYSE: CME), Cohn & Steers (NYSE: CNS), Cowen Group (Nasdaq: COWN), Diamond Hill Investment (Nasdaq: DHIL), Dollar Financial (Nasdaq: DLLR), Duff & Phelps (Nasdaq: DUF), Encore Capital (Nasdaq: ECPG), Edelman Financial (Nasdaq: EF), Equifax (NYSE: EFX), Epoch (Nasdaq: EPHC), Evercore Partners (NYSE: EVR), EXCorp. (Nasdaq: EZPW), FBR Capital Markets (Nasdaq: FBCM), First Cash Financial (Nasdaq: FCFS), Federated Investors (NYSE: FII), First Marblehead (NYSE: FMD), Fidelity National Financial (NYSE: FNF), Financial Engines (Nasdaq: FNGN), FXCM (Nasdaq: FXCM), Gamco Investors (NYSE: GBL), GAIN Capital (Nasdaq: GCAP), Green Dot (Nasdaq: GDOT), GFI Group (Nasdaq: GFIG), Greenhill (NYSE: GHL), Gleacher (Nasdaq: GLCH), Goldman Sachs (NYSE: GS), Interactive Brokers (Nasdaq: IBKR), INTL FCStone (Nasdaq: INTL), Intersections (Nasdaq: INTX), Investment Technology (NYSE: ITG), Invesco (NYSE: IVZ), Jefferies (NYSE: JEF), JMP Group (NYSE: JMP), Janus Capital (NYSE: JNS), KBW (NYSE: KBW), Knight Capital (NYSE: KCG), Lazard (NYSE: LAZ), Legg Mason (NYSE: LM), LPL Investment (Nasdaq: LPLA), Ladenburg Thalmann (AMEX: LTS), Mastercard (NYSE: MA), Moody’s (NYSE: MCO), MF Global (NYSE: MF), Moneygram (NYSE: MGI), MarketAxess (Nasdaq: MKTX), Marlin Business Services (Nasdaq: MRLN), Morgan Stanley (NYSE: MS), MSCI (Nasdaq: MSCI), MGIC Investment (NYSE: MTG), NewStar Financial (Nasdaq: NEWS), National Financial Partners (NYSE: NFP), Nelnet (NYSE: NNI), Northern Trust (Nasdaq: NTRS), NetSpend (Nasdaq: NTSP), Ocwen Financial (NYSE: OCN), Oppenheimer (NYSE: OPY), optionsXpress (Nasdaq: OXPS), PICO (Nasdaq: PICO), Piper Jaffray (NYSE: PJC), PMI Group (NYSE: PMI), Penson Worldwide (Nasdaq: PNSN), Portfolio Recovery (Nasdaq: PRAA), Raymond James (NYSE: RJF), SEI Investments (Nasdaq: SEIC), Stifel Financial (NYSE: SF), Safeguard Scientifics (NYSE: SFE), State Street (NYSE: STT), SWS (NYSE: SWS), T. Rowe Price (Nasdaq: TROW), Visa (NYSE: V) and Virtus Investment Partners (Nasdaq: VRTS).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Wall Street Week in Wild Review

It was a wild ride on Wall Street last week as volatility dominated the day

"The Greek" earned clients a 23% average annual return over five years as a stock analyst on Wall Street. While writing for Wall Street Greek and others, he presciently predicted the financial crisis and housing and banking failures of the Great Recession. Visit the front pages of Wall Street Greek now to see our current coverage of business news, global financial markets, real estate, shipping, fine art, technical analysis and global affairs.

(Tickers: NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: ICE, NYSE: NYX, Nasdaq: NDAQ)

Wall Street Week in Wild Review

A slew of foreign factors along with regular economic reports played havoc with Wall Street again last week. While the Dow Jones Industrials Index only dropped fractionally, hidden within the weekly chart is a virtual roller coaster ride. The daily differences between high and low price marks swung wildly all week long, with Monday's spread measuring 207 points; Tuesday's gap marking 305 points; Wednesday measuring 273 points; Thursday swaying 307 points; and Friday settling after a 215 point swing. Believe it or not though, the week was relatively calm when compared to its near predecessors. The S&P Volatility Index, known affectionately to traders as the "VIX", actually dropped 20% through the week. Still, the situation is like saying this latest hurricane did not kill as many people as the last. It has been an especially rough hurricane season, by the way, with stocks closing out their worst month in over a year as the Dow dropped 7.9%. Proponents of the old adage, "Sell in May and walk away," could likewise walk with heads held high, as this year's version of May looks to be the worst since 1962.

Driving the swings in shares were some old familiar faces and some new ones to keep things fresh. Europe is now a regular pain in the rear, and last week saw Spain's government debt downgraded for the second time in a month. The poor Spanish, though, only sought to give their debt judges and European masters what they demanded. In a cruel twist of fate, Fitch downgraded the Spaniards' sovereign debt rating because of their implementation of austerity measures, noting in their critical report that its latest prudent budget management would slow Spain's economy. Talk about a lose lose situation! So what do you think Greece's extreme austerity measures threaten to lead to in the motherland? Looks to me like the worst economic situation since World War II.

Regarding Spain, Fitch also noted the nation's central bank bailout of one of its regional banks. This leads us to one of the few positive factors found in the spastic week. European Union Financial Services Commissioner Michel Barnier said last week that the EU should levy a tax on banks to secure an emergency pool of funds for the future orderly unwinding of important financial institutions. This reassuring announcement acted as a counter against rising rumors and collecting concern about the current financial well-being of EU area banks.

However, another rumor surfaced and weighed on stocks last week. It was an old concern that burdened US shares once before. The Chinese were rumored to be cutting back on European debt interests on fear that the EU credit crisis might become endemic to the region. The Chinese offered appropriate lip service to counter the rumors and protect their own interests, however, we are not so sure they are putting their money where their mouth is. Rather, we expect the Chinese are hoarding commodities, including precious metals, as global currencies seem to face an impending threat.

The week's economic data was not all that supportive either last week, as first quarter GDP growth was revised lower to +3.0%, from the previously reported 3.2% rate. What was more worrisome was that economists were looking for an increase of 3.5%. Personal spending also ceased, but we found reason to blame that on the fall of Easter, as April's data matched against stellar March growth. The week ahead should perpetuate rough trading seas, as it brings market-moving catalysts like the Employment Situation Report. Thus, you might want to check in with the Wall Street Greek blog in between martinis.



Relevant tickers: NYSE: STD, NYSE: DB, NYSE: CS, NYSE: UBS, NYSE: NBG, NYSE: BAC, NYSE: GS, NYSE: JPM, NYSE: MS, NYSE: WFC, NYSE: PNC, NYSE: TD, NYSE: RHI, NYSE: KFY, NYSE: MAN, NYSE: MWW, Nasdaq: KELYA, Nasdaq: SVTAX, Nasdaq: SGMIX, Nasdaq: SVOAX, Nasdaq: SEVIX, Nasdaq: TMMAX, Nasdaq: SMIVX, NYSE: URR, NYSE: DRR, NYSE: GDX, NYSE: HAP, NYSE: REU, NYSE: RDF, NYSE: MSU, Nasdaq: ETRUX, Nasdaq: IRLNX, Nasdaq: IRLUX, Nasdaq: IRVAX, Nasdaq: IRVSX, Nasdaq: IRVIX, Nasdaq: IRGUX, Nasdaq: IRGVX, Nasdaq: IRGAX, Nasdaq: IRGJX, Nasdaq: IRCIX, Nasdaq: IRLAX, Nasdaq: IRLSX, Nasdaq: IRLIX, Nasdaq: IIRLX, Nasdaq: IRLCX, Nasdaq: IRMAX, Nasdaq: IIRMX, Nasdaq: IRMCX, Nasdaq: IRSIX, Nasdaq: IIRSX, Nasdaq: IRSSX, Nasdaq: RDBEX, Nasdaq: RDBSX, Nasdaq: RDBCX, Nasdaq: RADAX, Nasdaq: RADSX, Nasdaq: RRDAX, Nasdaq: RRDSX, Nasdaq: REIAX, Nasdaq: RESIX, Nasdaq: REMAX, Nasdaq: REMCX, Nasdaq: RLNAX, NYSE: RRY, NYSE: RRZ, NYSE: XLG, NYSE: JPP, Nasdaq: ETFC, Nasdaq: AMTD

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Goldman Sachs Hearing (NYSE: GS)

Topic of Debate

Today's topic of debate centers on Goldman Sachs. Do you believe Goldman and/or its executives questioned in Congressional hearings Tuesday did anything wrong? Give your 2 cents via the banner link below.

I listened to the Goldman Sachs (NYSE: GS) hearing all day long on Tuesday, which delayed the publishing of our weekly copy (in case you missed me). The spectacle of Congressional questioning of a man self-nicknamed "The Fabulous Fab" and other fabulously shady fellows, who smartly sought to game the process by attempting to confuse and frustrate the Congressmen, had all of Wall Street's attention. The contrast between the panel members' financial illiteracy and the likelihood of real wrongdoing on Wall Street offered a riveting radio experience perhaps not seen since the days before television. We know many of you had to listen to the radio broadcast, while sitting in your cubicles pretending to work, so we sympathetically tuned in to Bloomberg Radio with you.

There are two ways to look at the situation. While it is true (and unfortunate) that many of the Congressional questioners knew not what Goldman did, it is also true that greed and selfishness drove ethical missteps that led to the worst financial crisis since the Great Depression. While it seems clear to us that the credit rating agencies overlooked (negligence might be the word we are looking for) a few light risks (Congressmen: this is sarcasm) for the sake of making money, market-making (what the Goldman execs in question do) is a necessary task of the market and is delegated to some of its participants.

We are sure Congress is going to try to figure out a way to break up market-making and proprietary trading, and perhaps unemployment is high enough now to get that done. Market-making is not the greatest business, though if the activity is significant enough, the numbers on paper thin bid/ask spreads can add up. Wall Street firms have always been best equipped to get the job done properly and keep markets moving efficiently.

Still, back to the question at hand: Can we really blame Goldman Sachs for doing its job? Yes, its prop-trading desk held directional positions, but its market-making efforts sure seemed kosher to me. The SEC charge against Goldman and the Fabulous Fab may hold merit, especially since Paulson was allowed to choose certain credits and kick the strong Wells Fargo (NYSE: WFC) credits out of the pool, but the legal system will decide that.

That is a separate issue than the "sh_t" Senator Carl Levin said Goldman was selling. The company was only selling sh_t, because people wanted to buy sh_t. Some folks had a taste for that sh_t, and they wanted it now! Goldman made a market it that sh_t, meaning it had to put buyers and sellers together in the sh_tty trade. Yes, I enjoyed that...

Goldman Sachs Hearing (NYSE: GS)

So anyway, please tell us what you think. Did Goldman Sachs do anything wrong? How might Congress screw this up? Will the true wrongdoers face their due punishment or will our government blunder it all up and create fences around parakeets while letting wolves run free?



Debate Topic Archive

(Tickers: NYSE: GS, NYSE: JPM, NYSE: C, NYSE: BAC, NYSE: AIG, NYSE: MS, NYSE: FNM, NYSE: FRE, NYSE: WFC, NYSE: BKX, NYSE: NYX, Nasdaq: NDAQ, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD)

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Financial Regulatory Reform Forum

Topic of Debate

The Congressional hearings of the past few years have proven telling, unearthing an acute awareness of wrongdoing within the financial sector. Former employees, mostly the whistleblowers who lost their jobs for the sake of ethics and high moral values, have finally been heard. The government too has acknowledged its lack of oversight, and pledged to change supervisory rules to better protect Main Street. Still, as financial regulatory reform nears its final stages toward law, President Obama has had to reopen a forum to argue the case against the push of financial sector lobbying. The word on Wall Street is that insiders will tell you regulation is needed, but only in whisper and in side alleyways. Consistent with recent trend, Republican legislators argue that the Democrats have the wrong kind of reform, or that they are overdoing it. On podium, Democrats argue that Republicans lie for the sake of politics and lobbyists.

We want to know how you feel about this topic. Please be a part of the discussion and debate and share your views in our:

Financial Regulatory Reform Forum

Debate Topic Archive

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only. Tickers: NYSE: C, NYSE: FNM, NYSE: FRE, NYSE: AIG, NYSE: BAC, NYSE: JPM, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: NYX, NYSE: PNC, NYSE: TD, NYSE: MHP, NYSE: MCO, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD

Wall Street Reform

Today's Coffee

Today's Coffee covers Wall Street reform and more. President Obama delivered an important speech today in New York City's Cooper Union, where he gave his best sales pitch for new rules and regulations.

"The Greek" earned clients a 23% average annual return over five years as a stock analyst on Wall Street. While writing for Wall Street Greek and others, he presciently predicted the financial crisis and housing and banking failures of the Great Recession. Visit the front pages of Wall Street Greek now to see our current coverage of business news, global financial markets, real estate, shipping, fine art, technical analysis and global affairs.

(Tickers: NYSE: MCD, NYSE: JPM, NYSE: MS, NYSE: C, NYSE: GS, NYSE: BAC, NYSE: WFC, NYSE: AIG, NYSE: VZ, NYSE: KMB, NYSE: PEP, Nasdaq: MSFT, NYSE: BAX, NYSE: AXP, NYSE: UBS, NYSE: CS, NYSE: DB, NYSE: TOL, NYSE: HOV, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD)

Wall Street Reform

President Obama is in my town today, giving a speech on Wall Street reform at Cooper Union. Meanwhile, five economic reports and more turmoil in Greece have equity and forex markets flustered. That's not to mention heavy activity on the earnings front. Also, do not forget that it's Earth Day; the NYSE Euronext Green Summit is on in New York City (NYSE: NYX).

This particular note keys on the President's selling of financial regulation. It's a crying shame that this has become a political issue. The Democratic Party is pushing for it against politically driven push back from the Republicans. Just like with health care, the Republican argument is not that the idea is wrong, but rather that the details are off, and off by far. This is exactly the kind of political nonsense America is growing tired of, and one Greek-American as well; but it is a fault of human nature and selfishness more than of any particular party.

At some point, Americans will reach a critical threshold of disgust, and signs of it are already apparent in gunfire at the Pentagon and kamikazes at the IRS. When will Capitol Hill take notice? It seems to me, the party that is not in power is more often guilty of political game playing, though I have grown disgusted with my old Republican party for its seemingly consistently flawed inhuman positions, despite my conservative values. Still, I cannot stand as a pure Democrat either, due to my support of human life and faith-driven values. So, it seems Americans are drifting toward the middle with me, toward independence; and voting across party lines in the process. And we are growing wiser as well, and learning about the abuses of media messages for the sake of often impure cause.

President Obama's Regulatory Crusade

So President Obama is in my town today, blocking up traffic and making a mess of things. That's exactly what he wants to do though, shake up Wall Street, and God bless him for it. Stop the presses! Yep, Wall Street Greek is for Wall Street reform, to a degree. While I'm not for discriminatory taxes like the Financial Crisis Responsibility Fee, I'm for the intensified regulation that Ben Bernanke and Tim Geithner are pushing. I think companies like Lehman Brothers and AIG (NYSE: AIG) should have been better watched and contained. I think there should be a greater distinction between the functions of investment banks and commercial banks. Perhaps reserve requirements should be higher as well. Derivative securities have been abused, and those markets need to be controlled because of the wild leverage that can be created. We need Wall Street reform, and that should be apparent; though if you need reminding, see Geithner's testimony on the Lehman failure. I think you are aware of Goldman's (NYSE: GS) role in Greece. I expect we understand the rating agencies' failures by now, and their punishment is coming.

Anyway, I listened to the President before publishing this piece. He began by reminding Americans, who it seems some legislators believe have short memory, about the financial catastrophe we just survived. He reminded us that the job loss rate was plus 700K per month at one point last year. President Obama said that Americans and the Administration cannot be satisfied without real recovery and a lasting rebuilding of the economy. He said that we cannot leave the same structure in place, "That crisis was born from a failure of responsibility, from Wall Street, all the way to Washington." Basically, the President is doing his best to remind Americans why we need reform, which will get it passed. The SEC is doing its fine part as well, despite its curious timing.

So, are you buying what the President is selling?


Day's Economic Data & Market Drivers

Weekly Jobless Claims

In our weekly copy, "This Week," we said unemployment would likely stick high again this week, but that it might start to reflect census worker hiring. It looks like we were right again, as claims eased a bit off last week's peak to 456K in the period ended April 17. The April 10 claims figure was revised slightly to 480K, from 484K. The four-week moving average of claims moved upwards by 2,750, to 460,250. The change in the moving average must be unsettling for Administration officials, because the labor market is critical for lasting and driving economic recovery.

Producer Prices

Higher commodity prices in March were expected to play a significant role in the month's Producer Price Index (PPI), but not as significant as they did. March's Headline PPI increased by 0.7%, exceeding economists' expectations for a 0.4% gain. The upward surprise was most likely due to economists' underestimation of the rise in food prices. Over 70% of the hike in producer prices is explainable by a 2.4% increase in consumer foods. Cold weather in growing regions hurt vegetable production significantly, causing a 49.3% increase in vegetable prices. Have you noticed?

Energy prices recovered 0.7% after declining the month before, and were aided by another month (5 of last 6) of gasoline price increase (2.1% in March). Excluding food and energy, Core PPI inched higher by 0.1%, matching expectations and comparing against February's 0.1% increase. Pricing seems to be gaining momentum, up 6.0% over the last 12 months, which is the greatest increase since September of 2008.

Existing Home Sales

In our weekly copy, we said Existing Home Sales should recover from the depressed levels of February, but that the First-Time Homebuyer Tax Credit would not drive stellar figures just yet. We noted that the credit only requires entry into contract by April's end. Home Sales are recorded on closing though, which has until June's conclusion to qualify for the credit.

Existing Home Sales did improve, as expected, to an annual pace of 5.35 million in March, above economists' expectations for a pace of 5.25 million. The 6.8% increase over February's depressed level of 5.01 million, shows signs of a spring fling. As we have told here before, year-over-year comparisons for March and April are going to prove fantastic; this is because of last year's panic-level anemic economic activity. Indeed, Existing Sales improved 16.1% over last year's pace.

Existing home sales have trended higher on year-to-year comparison for nine consecutive months now, and inventory has trended lower for 20 months. Inventory fell to an 8.0 month supply in March, down from 8.5 months in February, and that's despite an increase in homes for sale. Thus, the pace of sales increase outpaced the rate of homes reaching the market. Indeed, the increase in homes for sale reflects positively for the market, assuming shadow inventory is not contributing (foreclosed property held by banks). To this end, National Association of Realtors Chief Economist Lawrence Yun said, "Foreclosures have been feeding into the inventory pipeline at a fairly steady pace and are being absorbed manageably." Yun also said the NAR would not be requesting an extension of the tax credit, but we suspect that might be due to its unlikelihood anyway. In any event, we've written here that this housing stimulus is reaching a threshold point, where it has little new punch.

Prices improved again, and I view this pricing data the most important (vs. S&P Case Shiller or FHFA), because it is relevant and current. The median price of an existing home sold for 0.4% more in March. The only two factors holding back activity now are still high unemployment and still tight lending standards; only one of which is acceptable. We know lending standards are tight because cash sales remain at a high percentage, though these are also a mainstay of foreclosure sales, which are common now.

Home Prices

Home prices for FHFA sponsored mortgages declined again in February, by 0.2%, and were down 3.4% over 12 months. The charts that the FHFA offers are telling me something. While I believe prices are still overvalued, it looks as though there is support at currently inflated rates. Prices could stick at overvalued levels, without the introduction of new catalyst, in my view. My analysis is thumbnail sketch here, and is missing important consideration of the value add of a FHFA sponsorship and its increased popularity over the years. Therefore, prices may be legitimately bottomed, and not necessarily overvalued.

Natural Gas Supply

The EIA reported on Natural Gas Inventory today. Data for the period ended April 16 showed a net increase of 73 Bcf (87 Bcf last week). We are in a seasonal building period now, and so stocks, currently 286 Bcf above the five-year average for this time of year should hold above normal.

Corporate Earnings Reports

We'll cover individual earnings data in our article on the day's "most active" stocks, if an article is published.

Look for EPS from Verizon (NYSE: VZ), American Express (NYSE: AXP), Amazon.com (Nasdaq: AMZN), PNC Financial Services (NYSE: PNC), Philip Morris Int'l (NYSE: PM), Union Pacific (NYSE: UNP), Pepsico (NYSE: PEP), Microsoft (Nasdaq: MSFT), Baxter International (NYSE: BAX), A.T. Cross Country (Nasdaq: ATX), ABB Ltd. (NYSE: ABB), Acacia Research (Nasdaq: ACTG), Advanced Energy Industries (Nasdaq: AEIS), Air Products & Chemicals (NYSE: APD), Alaska Air Group (NYSE: ALK), Alexion Pharmaceuticals (Nasdaq: ALXN), Align Technology (Nasdaq: ALGN), Alliance Fiber Optic Products (Nasdaq: AFOP), Amdocs Limited (NYSE: DOX), American Greetings (NYSE: AM), American River Bankshares (Nasdaq: AMRB), AmerisourceBergen (NYSE: ABC), Amsurg (Nasdaq: AMSG), Applied Industrial Technologies (NYSE: AIT), Arbitron (NYSE: ARB), Arthur J. Gallagher (NYSE: AJG), Associated Banc-Corp (Nasdaq: ASBC), AU Optronics (NYSE: AUO), Autobytel.com (Nasdaq: ABTL), AutoNation (NYSE: AN), Avid Technology (Nasdaq: AVID), BancorpSouth (NYSE: BXS), BB&T Corp. (NYSE: BBT), BJ's Restaurants (Nasdaq: BJRI), Briggs & Stratton (NYSE: BGG), Bucyrus Int’l (Nasdaq: BUCY), Builders FirstSource (Nasdaq: BLDR), C.R. Bard (NYSE: BCR), Cabot Microelectronics (Nasdaq: CCMP), Capital One Financial (NYSE: COF), Cash America Int'l (NYSE: CSH), Cepheid (Nasdaq: CPHD), Chubb (NYSE: CB), Citizens Banking (Nasdaq: CRBC), CoBiz (Nasdaq: COBZ), Coca-Cola FEMSA (NYSE: KOF), Columbia Sportswear (Nasdaq: COLM), Computer Programs & Systems (Nasdaq: CPSI), Continental Airlines (NYSE: CAL), Cooper Industries (NYSE: CBE), Courier Corp. (Nasdaq: CRRC), Credit Suisse (NYSE: CS), Cymer (Nasdaq: CYMI), Cypress Semi (NYSE: CY), Cytec (NYSE: CYT), Danaher (NYSE: DHR), Deckers Outdoor (Nasdaq: DECK), Deluxe Corp. (NYSE: DLX), Developers Diversified Realty (NYSE: DDR), DeVry (NYSE: DV), Diamond Offshore Drilling (NYSE: DO), Digi International (Nasdaq: DGII), Eastman Chemical (NYSE: EMN), Education Realty Trust (NYSE: EDR), Endologix (Nasdaq: ELGX), Ensco (NYSE: ESV), EZCorp (Nasdaq: EZPW), Federated Investors (NYSE: FII), Fifth Third Bancorp (Nasdaq: FITB), Freescale Semiconductor (NYSE: FSL), Gardner Denver (NYSE: GDI), GATX Corp. (NYSE: GMT), Gentex (Nasdaq: GNTX), Glacier Bancorp (Nasdaq: GBCI), Goodrich (NYSE: GR), Grupo Aeroportuario de Surest (NYSE: ASR), Hawaiian Holdings (NYSE: HA), Healthways (Nasdaq: HWAY), Hittite Microwave (Nasdaq: HITT), HNI Corp. (NYSE: HNI), Insteel Industries (Nasdaq: IIIN), Interactive Brokers (Nasdaq: IBKR), International Game Technology (NYSE: IGT), Interphase (Nasdaq: INPH), Invacare (NYSE: IVC), Isilon Systems (Nasdaq: ISLN), ITT Educational Services (NYSE: ESI), J&J Snack Foods (Nasdaq: JJSF), JAKKS Pacific (Nasdaq: JAKK), Janus Capital (NYSE: JNS), Kensey Nash (Nasdaq: KNSY), Kimberly-Clark (NYSE: KMB), KVH Industries (Nasdaq: KVHI), L.B. Foster (Nasdaq: FSTR), L-3 Communications (NYSE: LLL), Lacrosse (Nasdaq: BOOT), Lattice Semiconductor (Nasdaq: LSCC), Lender Processing Services (NYSE: LPS), Life Time Fitness (NYSE: LTM), LIN TV (NYSE: TVL), Local.com (Nasdaq: LOCM), LodgeNet Interactive (Nasdaq: LNET), LSI Industries (Nasdaq: LYTS), Marriott International (NYSE: MAR), Matthews International (Nasdaq: MATW), MBT Financial (Nasdaq: MBTF), Micrel Semiconductor (Nasdaq: MCRL), Microsemi (Nasdaq: MSCC), Midwestone Financial (Nasdaq: MOFG), MKS Instruments (Nasdaq: MKSI), NCR Corp. (NYSE: NCR), Nokia (NYSE: NOK), Nucor (NYSE: NUE), OceanFirst Financial (Nasdaq: OCFC), Old Republic International (NYSE: ORI), OSI Pharmaceuticals (Nasdaq: OSIP), PC-Tel (Nasdaq: PCTI), PDF Solutions (Nasdaq: PDFS), Peabody Energy (NYSE: BTU), Penn National Gaming (Nasdaq: PENN), Performance Technologies (Nasdaq: PTIX), Pixelworks (Nasdaq: PXLW), PMC-Sierra (Nasdaq: PMCS), PNC Financial (NYSE: PNC), Pool Corporation (Nasdaq: POOL), Precision Drilling (NYSE: PDS), Premiere Global Services (NYSE: PGI), ProLogis (NYSE: PLD), Provident Financial Services (NYSE: PFS), Rambus (Nasdaq: RMBS), Ramtron (Nasdaq: RMTR), Raytheon (NYSE: RTN), Reddy Ice (NYSE: FRZ), Reliance Steel (NYSE: RS), Reynolds American (NYSE: RAI), Rimage (Nasdaq: RIMG), Riverbed Technology (Nasdaq: RVBD), Rocky Brands (Nasdaq: RCKY), RSC Holdings (NYSE: RRR), Sandy Spring Bancorp (Nasdaq: SASR), ScanSource (Nasdaq: SCSC), Scientific Learning (Nasdaq: SCIL), Sherwin-Williams (NYSE: SHW), Sify Ltd. (Nasdaq: SIFY), Sigma-Aldrich (Nasdaq: SIAL), Sonoco (NYSE: SON), Southern Community Financial (Nasdaq: SCMF), Southwest Airlines (NYSE: LUV), Sterling Bancshares (Nasdaq: SBIB), STMicroelectronics (NYSE: STM), SVB Financial (Nasdaq: SIVB), Sybase (NYSE: SY), Synaptics (Nasdaq: SYNA), Syntel (Nasdaq: SYNT), Taubman Centers (NYSE: TCO), TCF Financial (NYSE: TCB), Tennant (NYSE: TNC), Textron (NYSE: TXT), The Blackstone Group (NYSE: BX), The Cheesecake Factory (Nasdaq: CAKE), The Hershey Co. (NYSE: HSY), The Inventure Group (Nasdaq: SNAK), The McClatchy Co. (NYSE: MNI), The New York Times (NYSE: NYT), TradeStation (Nasdaq: TRAD), Ultratech (Nasdaq: UTEK), Umpqua Holdings (Nasdaq: UMPQ), United Community Banks (Nasdaq: UCBI), Valley National Bancorp (NYSE: VLY), Vicor (Nasdaq: VICR), Virginia Commerce (Nasdaq: VCBI), W.R. Grace (NYSE: GRA), Washington Banking (Nasdaq: WBCO), Wastco (NYSE: WSO), Webster Financial (NYSE: WBS), WESCO International (NYSE: WCC), Western Alliance Bancorp (NYSE: WAL), Western Digital (NYSE: WDC), Wilshire Bancorp (Nasdaq: WIBC), Wipro (NYSE: WIT), WNS Holdings (NYSE: WNS), Woodward (Nasdaq: WGOV), Yadkin Valley Bank (Nasdaq: YAVY), Young Innovations (Nasdaq: YDNT) and Zimmer Holdings (NYSE: ZMH).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Lehman Hearing - Testimonies of Bernanke & Geithner

The day was light on economic data, heavy on earnings reports and dominated by the Lehman Hearing testimonies of Bernanke and Geithner.

"The Greek" earned clients a 23% average annual return over five years as a stock analyst on Wall Street. While writing for Wall Street Greek and others, he presciently predicted the financial crisis and housing and banking failures of the Great Recession. Visit the front pages of Wall Street Greek now to see our current coverage of business news, global financial markets, real estate, shipping, fine art, technical analysis and global affairs.

(Tickers: NYSE: GS, NYSE: FRE, NYSE: FNM, NYSE: AIG, NYSE: KO, Nasdaq: AAPL, NYSE: USB, NYSE: JNJ, Nasdaq: GILD, NYSE: BK, NYSE: UNH, Nasdaq: YHOO, NYSE: AOS, NYSE: AKS, Nasdaq: ALTR, NYSE: ACH, NYSE: APH, Nasdaq: BIIB, NYSE: EAT, NYSE: CHE, NYSE: COH, Nasdaq: CREE, NYSE: DAL, NYSE: FRX, Nasdaq: FULT, NYSE: HOG, NYSE: HNP, Nasdaq: IBKC, NYSE: ITW, NYSE: JEF, Nasdaq: JNPR, Nasdaq: MANH, NYSE: MI, NYSE: NBR, Nasdaq: NTRS, NYSE: NVS, NYSE: ORB, Nasdaq: PCAR, NYSE: PH, Nasdaq: PBNY, NYSE: RF, NYSE: STX, NYSE: STT, NYSE: SYK, NYSE: SVU, NYSE: SNV, Nasdaq: AMTD, NYSE: USG, NYSE: VMW, NYSE: WFT, NYSE: WWW, NYSE: C, NYSE: MS, NYSE: JPM, NYSE: WFC, NYSE: PNC, NYSE: TD, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD)

The day's headline story was centered on the Lehman Brothers hearings and the related testimonies of Federal Reserve Chairman Bernanke and Treasury Secretary Geithner before the House Financial Services Committee.

Lehman Hearing - Testimonies of Bernanke & Geithner

Bernanke's Remarks

Chairman Bernanke led off his remarks by absolving himself of all blame. The Chairman reminded the panel that Lehman was not under Federal Reserve supervision because it did not own a commercial bank. I felt like the Chairman meant to say, "In other words Congressmen, be nice to me today." Bernanke regressed back into his early days as Fed boss, with that meek voice coming through again; it was the frail and crackling one that had early market sentiment a bit worried about the boy. Of course, since those early easy days, the Fed boss has taken the reins of all our nation's economic horses, and shown himself to be a true scholar of the Depression and champion of Washington. I'll remind you that without Bernanke, the Bush Administration seemed and was lost, and our economic ship in perilous seas, lost as well.

Bernanke reminded his Congressional conspirators that, in fact, Lehman was barely supervised at all. The SEC policed its broker-dealer business, and the parent company fell under the patrol of the SEC's Consolidated Supervised Entity Program (CSE), which, importantly, was voluntary and without statutory jurisdiction (in other words, it was impotent and Lehman unsupervised).

Bernanke reviewed the Fed's bold steps to measure Lehman's (and others') risk in conjunction with the SEC, and brought together his organization with the SEC to share information. He shone a bright light on the shadow banking system. However, the mere placement of Fed representatives at Lehman must have served as a primer for rumors in a Wall Street sea full of sharks. It was not in Lehman's competitors' interests to help save the company, despite what Bernanke was telling them. So, when they all came together at the New York Fed in September of 2008, Wall Street did not step up to save Lehman. In fact, we recall Wall Street was ruthless in its devouring of Lehman and Bear Stearns, and Merrill would have been next. In that way, the sharks would risk their own survival just to feast on rival Lehman. Recall, it was only a matter of days and hours, in which Lehman's prospective counterparties ran away and its capital disappeared.

The Chairman offered this advice to the Congressmen to help our nation avoid future catastrophic risks like those posed by Lehman's failure:

"The Lehman failure provides at least two important lessons. First, we must eliminate the gaps in our financial regulatory framework that allow large, complex, interconnected firms like Lehman to operate without robust consolidated supervision. In September 2008, no government agency had sufficient authority to compel Lehman to operate in a safe and sound manner and in a way that did not pose dangers to the broader financial system. Second, to avoid having to choose in the future between bailing out a failing, systemically critical firm or allowing its disorderly bankruptcy, we need a new resolution regime, analogous to that already established for failing banks. Such a regime would both protect our economy and improve market discipline by ensuring that the failing firm's shareholders and creditors take losses and its management is replaced."

Geithner's Statement

The Treasury Secretary reminded his audience of the significance and consequence of the bankruptcy of Lehman Brothers. He directed their attention to the recently published examiner's report, produced by Anton Valukas: the Valukas Report on Lehman Brothers.

The Treasury Secretary made a fantastic case for his boss, the President, and the Financial Regulatory Reform Bill now under debate in the Senate. I thought his most emphatic words came when he illustrated the lengths then President Bush had to go to in order to preserve the financial system and American economy. He said:

"When a conservative Republican President – a President with abiding faith in markets – is forced by a financial crisis to put Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) into conservatorship;

to ask Congress for $700 billion in authority to stabilize the financial system and then to invest taxpayer money into banks that account for three quarters of the entire U.S. banking system;

to lend billions of dollars to two of our largest auto makers;

when he does all that – and he was right to do it – it is undeniable that our system is broken.

The question we face is not whether to fix it but how best to fix it. "

He concluded by noting that any system that relies on market discipline to compensate for weak regulation is doomed. Geithner for president anyone? I still remember his, "You don't know me very well Congressman" statement from a few months back, and it's hard not to like the tough guy. Put the two of them together on a ticket, and I bet you have a winner.

ICSC Same-Store Sales Report

The trends we pointed out in last week's note on the ICSC data, and within our weekly copy, "This Week," played out exactly as expected this morning. The ICSC posts its Weekly Same-Store Sales data in the pre-market, and this week provided information for the period ended April 17.

Still matching up against part of the pre-Easter sales period, this year's week-over-week comparison had a hill to climb. Sales rose just 0.2%, but next week's match-up should prove fairer. When matched against the prior year's figure, it was all downhill for same-store sales. The current year period's sales were 4.6% above last year's depressed state of affairs. Expect more results like this in the weeks ahead, as we match up against some of the easiest to beat economic data in the history of our country. Remember, this expectation only applies for yearly comparisons. Most economic data is reported on a month-over-month basis, so I would not go betting on big numbers surprising the market.

As a reminder, in the week ended April 10, weekly sales gained just 0.1%, and improved 4.0% against the prior year's depressed levels.

Corporate Earnings News

The earnings schedule included news from Coca-Cola (NYSE: KO), Goldman Sachs (NYSE: GS), Apple (Nasdaq: AAPL), US Bancorp (NYSE: USB), Johnson & Johnson (NYSE: JNJ), Gilead Sciences (Nasdaq: GILD), Bank of New York Mellon (NYSE: BK), UnitedHealth Group (NYSE: UNH), Yahoo! (Nasdaq: YHOO), AO Smith (NYSE: AOS), AK Steel (NYSE: AKS), Allegiant Travel (Nasdaq: ALGT), Altera (Nasdaq: ALTR), Aluminum Corp. of China (NYSE: ACH), Amphenol (NYSE: APH), Astec Industries (Nasdaq: ASTE), Badger Meter (NYSE: BMI), Banco Latinoamericano de Comercio (NYSE: BLX), Biogen Idec (Nasdaq: BIIB), Bridge Capital (Nasdaq: BBNK), Brinker Int'l (NYSE: EAT), C&D Technologies (NYSE: CHP), Chemed (NYSE: CHE), Coach (NYSE: COH), Conceptus (Nasdaq: CPTS), CPI Corp. (NYSE: CPY), Cree (Nasdaq: CREE), Cybex Int'l (Nasdaq: CYBI), Dearborn Bancorp (Nasdaq: DEAR), Delta Air Lines (NYSE: DAL), Eagle Bancorp (Nasdaq: EGBN), Eaton (NYSE: ETN), Edwards Lifesciences (NYSE: EW), Evercore Partners Flexsteel (Nasdaq: FLXS), Forest Laboratories (NYSE: FRX), Fulton Financial (Nasdaq: FULT), Glimcher Realty Trust (NYSE: GRT), Hancock Holding (Nasdaq: HBHC), Harley-Davidson (NYSE: HOG), Home Bancshares (Nasdaq: HOMB), Huaneng Power (NYSE: HNP), IberiaBank (Nasdaq: IBKC), Illinois Tool Works (NYSE: ITW), Infinera (Nasdaq: INFN), Jefferies (NYSE: JEF), Journal Communications (NYSE: JRN), Juniper Networks (Nasdaq: JNPR), LaBranche & Co. (NYSE: LAB), Lee Enterprises (NYSE: LEE), Manhattan Associates (Nasdaq: MANH), Marshall & Ilsley (NYSE: MI), Marten Transport (Nasdaq: MRTN), Mercantile Bank (Nasdaq: MBWM), Meridian Bioscience (Nasdaq: VIVO), Millicom Int’l (Nasdaq: MICC), Nabors Industries (NYSE: NBR), New Orient Education (NYSE: EDU), Northern Trust (Nasdaq: NTRS), Novartis (NYSE: NVS), NuVasive (Nasdaq: NUVA), Omnicom (NYSE: OMC), Orbital Sciences (NYSE: ORB), Oriental Financial (NYSE: OFG), PACCAR (Nasdaq: PCAR), Parker Hannifin (NYSE: PH), Peoples Bancorp (Nasdaq: PEBO), Pervasive Software (Nasdaq: PVSW), Plexus (Nasdaq: PLXS), Provident Bancorp (Nasdaq: PBNY), Regions Financial (NYSE: RF), Remy Int’l (Nasdaq: REMY), Renasant (Nasdaq: RNST), Savannah Bancorp (Nasdaq: SAVB), Seagate Technology (NYSE: STX), Snap-on (NYSE: SNA), State Street (NYSE: STT), Stepan Co. (NYSE: SCL), Stryker (NYSE: SYK), Supervalu (NYSE: SVU), Synovus (NYSE: SNV), TD Ameritrade (Nasdaq: AMTD), Teck Resources (NYSE: TCK), Tempur Pedic (NYSE: TPX), The South Fin’l (Nasdaq: TSFG), TSS (Nasdaq: TSYS), Twin Disc (Nasdaq: TWIN), Ulticom (Nasdaq: ULCM), USG (NYSE: USG), Vascular Solutions (Nasdaq: VASC), VMware (NYSE: VMW), Vocus (Nasdaq: VOCS), Waste Connections (NYSE: WCN), Weatherford Int’l (NYSE: WFT), and Wolverine World Wide (NYSE: WWW).

In other corporate activity, Magna Entertainment sought bankruptcy court approval to exit Chapter 11. U.S. Bancorp (NYSE: USB) and Citigroup (NYSE: C) held shareholder meetings, and J.C. Penney (NYSE: JCP) hosted an analysts' meeting.


Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Wall Street NOT Above the Law

Well...well...well! As it turns out, Wall Street is not above the law after all. While we expect much of the Street is calling the SEC charge against Goldman Sachs a witch hunt, we cannot imagine the SEC filing the kind of charge it did today without darn solid proof of wrongdoing. So Wall Street is not above the law then, but what about Water Street, where America's largest rating agency resides and still sits pretty? Looks like this action will be just one of many actions taken to right the wrongs of Wall Street and Water Street alike though. So, those of you homeless or jobless now thanks to the fallout of Wall Street greed, take comfort in the fact that there is a God, and justice will be served.

"The Greek" earned clients a 23% average annual return over five years as a stock analyst on Wall Street. While writing for Wall Street Greek and others, he presciently predicted the financial crisis and housing and banking failures of the Great Recession. Visit the front pages of Wall Street Greek now to see our current coverage of business news, global financial markets, real estate, shipping, fine art, technical analysis and global affairs.

(Tickers: NYSE: GS, NYSE: BAC, NYSE: GE, Nasdaq: EVBS, NYSE: FHN, NYSE: GCI, NYSE: GPC, NYSE: KNL, Nasdaq: LAKE, NYSE: MAT, NYSE: PBR, NYSE: XLF, NYSE: JPM, NYSE: MS, NYSE: C, NYSE: WFC, NYSE: TOL, NYSE: HOV, NYSE: BZH, NYSE: DHI, NYSE: TD, NYSE: PNC, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD)

Wall Street is Not Above the Law

The day started out well enough, before turning decidedly negative on an onslaught of bad news. The pre-market wire offered a strong Housing Starts report for March. However, from that point on, things went from bad to worse. Bank of America (NYSE: BAC) started spoiling things when it offered an earnings report that focused market attention on rising home loan losses. Not long after the opening bell rang, Reuters/University of Michigan produced its latest Consumer Sentiment Index, which offered an unexpectedly deep slide in confidence. At this point, the market, already well beaten, took its knockout blow. The SEC charged Goldman Sachs (NYSE: GS) with fraud, signaling financial market participants are not going to get off easy after creating the worst financial crisis since the Great Depression. At this hour of publishing, the Dow Jones Industrials are off by 1.1%, and the party may really be over.

SEC Charges Goldman Sachs

The biggest news of the day, and a reviver of the Volatility Index (S&P 500), which is up 20% today, was the news that the Securities and Exchange Commission (SEC) was charging Goldman Sachs (NYSE: GS) and a VP of the firm with "defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter." Goldman's shares are down 12% on the news, through the hour of publishing. In the end, the greatest navigator of financial chaos is discovered to have cheated, allegedly. Not only that, the royalty of Wall Street proves not above the law when the peasants light their torches and march in the pale moonlight. And it looks like the Administration is determined to see Wall Street pay up on its bailout, one way or another.

"The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund (Paulson & Co.) played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO."

Goldman's shares are off 12% at hour of publishing, and the stock market has been turned upside down. The market is rightly flustered, as the most significant investment bank and largest hedge fund are implicated in wrong doing. Note, however, that Paulson & Company has not been charged for wrongdoing; it is only involved. This is going to take some further inspection to get my arms around too...

Well, it is about time some action is being taken, and we are sure America is looking forward to seeing Standard & Poor's receive its due punishment for allegedly rating mortgage-backed securities without regard for the possibility of a real estate price decline. Dennis Kucinich, US Congressman, actually called it "criminal" during the hearings on the Hill. The MBA market would not likely have grown to its massive size without AAA ratings on pooled securities, and perhaps the financial sector would not have fallen like dominoes set in a row either. So, I say it is about time, and time is still ticking for justice; but it's coming! We're looking forward to your comments on this one!

Housing Starts

The National Association of Home Builders (NAHB) posted a strong Housing Market Index for April, showing builder confidence improved significantly. The HMI improved four points to 19, and Housing Starts, which were reported this morning for March, showed us some of the reason why. Privately owned housing starts improved 1.6% in March, to an annual pace of 626K, versus the revised February rate of 616K. The data showed a 20.2% improvement over perhaps the darkest period in a generation; March 2009 starts measured 521K.

The really good news came from the Building Permits data point though. Permits improved 7.5%, to 685K in March, versus the revised February rate of 637K. Take Note: Permitting was hot in the Midwest and South, and cold in the Northeast and West. Permitting activity is, of course, a fore runner to new homestead starts and a leading indicator for real estate. The only problem is that the data is not without noise now, as April's end marks the deadline for entry into contract for those seeking to benefit from the New Homebuyers Tax Credit. Thus, May, June and July might offer different insight. Of course, the tax incentive might also be extended, similarly to the ongoing extensions of unemployment insurance.

Consumer Confidence Index

Maybe Easter get-togethers put relatives into close proximity with the economic-victims within their own families, and changed the bright view they held just a few weeks earlier. In a period of just two weeks, consumer sentiment slid sharply. This mid-April reading of the index offered a measure of 69.5, well off the March close of 73.6 and even shorter than the economists' consensus for 75 (Reuters).

"It does not help that unemployment has been stubbornly holding, and small business sentiment lacking. These are the realities that are sinking in on consumers these days."

The Index has components that help to color the view of consumers further. The opinion on Current Conditions soured in April, with the component index slipping to its lowest point since December (to 80.7). However, expectations have been the key driver of sentiment, as hope has been plentiful for economic recovery. As that fact has been slow proving though, the Expectations Index dropped to 62.3, down from 67.9 at the end of last month. This latest reading is the lowest since last March, which we remind you was a pretty tough time for most of us. It does not help that unemployment has been stubbornly holding, and small business sentiment lacking. These are the realities that are sinking in on consumers these days.

Corporate News Drivers

Bank of America

Bank of America (NYSE: BAC) reported earnings of $2.83 billion, as strong trading revenue outweighed mounting losses on consumer loans. The bank earned $0.28 a share, after preferred dividends, beating the Street's estimate for just $0.09. Still, earnings were well below the prior year mark of $0.44.

The market's focus was on the more forecastable banking operations though, the core business of lending. That's where BofA raised concerns, as it reported a $2.1 billion loss in its home mortgage business. Analysts are looking for loan losses to peak this year, and BofA set aside less money this quarter for loan losses, just $9.8 billion... Note that while the bank set less money aside for overall loan losses, it increased its reserve for mortgages. That bit of news and its forecast for a dull lending environment helped bank stocks across the segment take a step down in the early AM. Bank of America was off 4.5% at our last check.

General Electric

General Electric (NYSE: GE) reported earnings that beat the street, but its revenues fell short. The stock was off about 3% through the hour of publishing, though the stock had risen approximately 4% from Monday. GE's EPS of $0.21 for Q1 exceeded the analysts' consensus view for $0.16, and CEO Jeff Immelt said he sees economic stabilization and positive earnings growth through the year ahead. However, investors penalized the stock, which we remind you had already risen ahead of the news, for a revenue figure that fell short of analysts' consensus, and was 4.9% short of last year's tally. Revenues softened due to the failings of GE Capital, and its rapid downsizing in the earth-shifting financial sector marketplace.

Earnings

ING (NYSE: ING) is scheduled to hold an investor day in London. Google (Nasdaq: GOOG) reported last evening and disappointed investors. EPS reports arrived from Eastern Virginia Bankshares (Nasdaq: EVBS), First Horizon National (NYSE: FHN), Gannett (NYSE: GCI), Genuine Parts (NYSE: GPC), Knoll Inc. (NYSE: KNL), Lakeland Industries (Nasdaq: LAKE), Mattel (NYSE: MAT) and Petrobras (NYSE: PBR).


This article should also interest investors in NYSE: TOL, NYSE: HOV, NYSE: JPM, NYSE: BZH, NYSE: DHI, NYSE: PNC, NYSE: TD, NYSE: WFC, NYSE: C, NYSE: MS, NYSE: MHP, NYSE: MCO.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Financial Crisis Responsibility Fee

Visit the front page of Wall Street Greek to see our current coverage of Wall Street, Washington, global affairs, economic reports and global financial markets.

The Financial Crisis Responsibility Fee is an irresponsible proposal, in my view. While bonus jockeying by TARP babies disgusts me, two wrongs do not make a right. I propose the Administration instead seek to reform the process of determination of executive compensation, since it is paradoxical that Americans view it grossly excessive, and yet shareholders agree to it.

(Relative Tickers: NYSE: BAC, NYSE: JPM, NYSE: GS, NYSE: MS, NYSE: WFC, NYSE: C, NYSE: USB, NYSE: BK, NYSE: PNC, NYSE: STI, NYSE: RY, NYSE: TD, NYSE: BNS, NYSE: KEY, NYSE: SAN, NYSE: STD, Nasdaq: ITUB, NYSE: WBK, NYSE: MTU, NYSE: MFG, NYSE: CS, NYSE: UBS, NYSE: BCS, NYSE: DB, NYSE: BMO, NYSE: IBN, NYSE: LYG, NYSE: NBG, NYSE: BAP, NYSE: AIB, Nasdaq: GGAL, NYSE: SBP, NYSE: BLX, NYSE: XLF, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD)

Financial Crisis Responsibility Fee

Last week, the President proposed his Financial Crisis Responsibility Fee, a tax on the 50 largest financial companies. The proposed fee has been engineered to recover funds provided to the firms, issued to ensure their survival through the financial crisis, and to save the country's financial system as well. There are various possibilities for the reasoning behind the Administration's seeking to impose this fee now.

The President may simply intend what he states, to ensure that those who benefited from the TARP payouts meet their obligations. The benefit to him and his party is clear, as he would demonstrate to the American people that greedy executives will not pay themselves big bonuses at the cost of the American taxpayer. Rather, in this case, the shareholders of the firms in question will continue to rightly to bear their cost.

As with any political issue, the exploration of other possibilities cannot be avoided. As the Treasury Budget deficit expands due to stimulus and other government spending that is matched against slimmer government receipts, the President is under intensifying pressure to find money. Tapping into popular sentiment that stands against Wall Street offers an easy route toward those funds, especially as these firms issue their annual bonus payouts. However, the taxpayer is only owed $117 billion by "conservative estimates," with fund flows spread out over a period of 12 years; so we are not talking about a significant annual inflow. Perhaps every little bit counts though... Finally, there is a possibility that the Administration only seeks to better position itself for political jockeying purposes.

While I understand the President's ire toward irresponsible and selfish executives at work on Wall Street, I disagree with his Administration's response. The American President pushed the tenets of capitalism aside, by proposing a new special levy on what appears an unscientifically identified group of financial organizations. Fifty of the nation's largest banks have been targeted, supposedly in order to drive home a lesson, that excessive risk taking does not pay. The action seems to me a naive and sloppy hacking for the sake of a misguided sense of righteousness, or perhaps yet another politically motivated perversion of the American way.

Democrats have come under a lot of pressure of late, and might benefit from championing this Main Street cause. Since both the recession and TARP were Bush's babies, it makes sense to form a corrective political strategy. Even if Obama's inspiration is not political, I doubt his party's political positioning advisers are talking him out of it. I am not so sure about the economic crew though, because this stinks of mafia state.

Politically speaking, with the loss of the Senate seat in Massachusetts, the Administration will have difficulty getting the Democratic Party agenda accomplished. Playing hardball on issues like this one might simply give the Democrats the bargaining chips they need to pass legislation like health care reform.

Still, I am almost apologetic for my words, because I am far from favoring the excesses and criminal-like, selfish activity I see at the TARP and other government saved firms. The bonus jockeying that occurred on Wall Street last fall disgusts me. Several bank corporate executives determined their firms should sell new shares of stock in order to raise capital, so that they might repay TARP loans early.

Before you pat them on the back for their great sense of responsibility to the government, let us examine their incentive and who bore the real cost. The reason existing shareholders' stakes were diluted by these hurried equity offerings could be attributed to corporate executives' intent to once again collect the bonuses they had grown accustomed to over the years. You see, just before these slick maneuvers occurred, the government decided no TARP baby could pay bonuses to their executives. So, the entire nursery made a break for it.

I think you can see why I am not in perfect opposition to the President in this case, but I will explain now why I disagree with this method of engagement. Free market capitalism works best when the game is played fairly. When one team cheats, it does not improve the game if the other does as well. In other words, two wrongs do not make a right. We should not impose surprise taxes on the shareholders of these firms. What we should have done is taken equity stakes in the firms, enough to ensure bonuses would not be paid out. Casting a broad net is unfairly catching goldfish along with the sharks. Firms have been discriminately selected based on their size alone, and some of these organizations were forced to take part in TARP while others did not have as dirty hands as those we seek to punish.

Maybe though, it takes some naivete' to get great things done, and perhaps this is just the cost we bear for it. It is possible that shareholders might punish their corporate leadership and improve corporate governance as a result of this bill, should it pass into law. What our government should really be seeking to do, is to change the way corporate executive compensation is determined. If Americans disagree with the amount of compensation executives make, than the system of determination must be flawed. Otherwise, why do the shareholders of these firms, which are inclusive of Americans, continue to elect and agree to such payments?

The destructive effect of this Presidential proposal is to raise uncertainty around this government. In the eyes of the investment community, it is now unpredictable. Investors and corporate America will worry that the government makes rules up as it goes along, and therefore cannot be trusted. The stock market is a great judge of value, and though it was slow to catch on to the agenda this time, as the President announced another action this week to go along with his new tax, stocks rediscovered volatility. I am sure the Administration does not seek to do more harm than good, but this action is poised to, in my view.

"It is also in reality the integrity of our government and financial markets that we place in peril."

Political will has shown itself to be soft through this economic crisis, and so I anticipate our elected leaders will cave like jellyfish to populist sentiment that stands strongly against the proverbial “Wall Street;” though it is in reality 50 big banks we speak of. It is also in reality the integrity of our government and financial markets that we place in peril.

Bloomberg took a survey of its subscribers that showed 77% of investors and analysts view the President as anti-business, which may perhaps be a side effect the Democrats had not anticipated. Still, investors and analysts do not comprise the entirety of the nation, as 52% of Americans said Obama struck the right balance.

The idealist in me doubts a bill like this could pass through Congress, but the realist, who knows what short length political will extends, worries it might. The only hope for honest capitalism to remain unmolested now is if the Democrats only seek to use this initiative as a bargaining chip, to be traded later for another legislative gain. We must not allow this proposal to become law, not for the sake of "responsibility," but for the sake of the integrity of our capitalism.


Editor's Note: This article should interest investors in the largest financial institutions, including Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Citigroup (NYSE: C), US Bancorp (NYSE: USB), Bank of New York Mellon (NYSE: BK), PNC Financial Services (NYSE: PNC), Suntrust Banks (NYSE: STI), Royal Bank of Canada (NYSE: RY), Toronto-Dominion (NYSE: TD), The Bank of Nova Scotia (NYSE: BNS), Keycorp (NYSE: KEY), Banco Santander Chi (NYSE: SAN), Banco Santander ADR (NYSE: STD), ITAU Unibanco (Nasdaq: ITUB), Westpac Banking (NYSE: WBK), Mitsubishi UFJ (NYSE: MTU), Mizuho Financial (NYSE: MFG), Credit Suisse (NYSE: CS), UBS AG (NYSE: UBS), Barclays Plc (NYSE: BCS), Deutsche Bank (NYSE: DB), Bank of Montreal (NYSE: BMO), ICICI Bank (NYSE: IBN), Lloyds Banking Group (NYSE: LYG), National Bank of Greece (NYSE: NBG), Credicorp (NYSE: BAP), Allied Irish Banks (NYSE: AIB), Grupo Financiero Galicia SA (Nasdaq: GGAL), Santander Bancorp (NYSE: SBP), Banco Latinamericano (NYSE: BLX), NYSE: XLF, etc.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Wall Street Week - Obama Mania

By Markos N. Kaminis - Economy & Markets:

Visit the front pages of Wall Street Greek and Market Moving News to see our current coverage of economic reports and financial markets.

Obama mania swept over the nation last week, as Martin Luther King, Jr. Day was followed by the inauguration of America's first African-American president. The energy thrown off by the inauguration and related events seemed to revive the nation, at least for the day. The incoming administration's diligent preparation was evident almost immediately, as the new chief touched off his term with a whirlwind first day.

(Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, NYSE: SDS, NYSE: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)

If you didn't get the "change" message through the never-ending presidential campaign, you got it now! On day one, Obama froze the pay of his staff and also all executive orders submitted during the Bush Administration's midnight hour. Guantanamo Bay is closing; withdrawal from Iraq seems likely over the next 16 months; Secretary of State Clinton brought back old faithfuls in George Mitchell and Richard Holbrooke to help run the show in the hot spots of the Middle East and Afghanistan/Pakistan, respectively; and economic stimulus is on the way by President's Day.

The biggest change perhaps came from Obama's reaching across the table, not only to the GOP, but also across the world. In his inaugural speech, it seemed to me his words, "we will extend a hand if you are willing to unclench your fist" was directly intended for Iran and perhaps Russia.

On Friday, Obama met with his domestic adversaries, the Republicans. There's a sort of tussle brewing over the new Administration's economic stimulus plan. Obama wants to put about $825 billion more to work towards America's industrial future, our infrastructure, foreclosure salvation and to help low-income Americans. However, word is that the Republicans are seeking more of the same broad reaching tax cuts we saw last year, and less spending.

The week just passed was light on economic data, but it exposed new lows for the housing market. The National Association of Home Builders noted that builders' confidence reached a record low in January. The NAHB's Housing Market Index dropped to 8, from the previous low of 9 recorded last month. A day later, the government reported Housing Starts for December collapsed to a record level not seen ever, and record keeping began in 1959. Starts fell 16% from a revised November level, to an annual pace of 550K in December. Building Permits, an indicator of pending activity, also touched down on a record low, at 549K.

Weekly Initial Unemployment Claims jumped up to 589K, from 527K (revised) a week before. We forecast this here, as the stimulant of holiday shopping is now passed. Without this stimulant, retailers are left in a dead-zone now, and so layoffs, store closings and even bankruptcy are a real likelihood for many of these businesses through 2009. The International Council of Shopping Centers reported its weekly same-store sales data as usual. In the week ended January 17, sales fell 1.8% from the prior year period. However, markdowns gave sales a 1.1% boost over the week just prior.

This week holds some interesting economic reports and a full schedule of earnings reports. On the economic slate, Leading Indicators for December will give economists a last chance to tweak their Q4 GDP forecast. The GDP report is scheduled for Friday, and the outlook is dire. Take a breath and have a seat now, because economists forecast Real GDP for Q4 contracted by 5.4%. See more on the coming week in our pending "Week Ahead" piece.


Please see our disclosures at the Wall Street Greek website and author bio pages found there.

Wall Street Week - Hope for Miracles

By Markos N. Kaminis - Economy & Markets:

Visit the front pages of Wall Street Greek and Market Moving News to see our current coverage of economic reports and financial markets.

Last week's "Miracle on the Hudson" was perfectly timed for a market that needed a reason to believe. The Dow Jones Industrials Index put in another losing week, falling 3.7% this time. Stocks started the period hopeful that despite the prior week's sad holiday shopping tally, maybe a fresh slate would offer reason for rise.

(Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)

The week marked the official start of earnings season with the traditional report of Alcoa (NYSE: AA). However, the aluminum king was downgraded by a Deutsche Bank analyst even before it reported its $1.19 billion loss on Monday. Harsh corporate news dominated the week from start to finish. Citigroup (NYSE: C) awoke to selling pressure, as investors worried about its longevity as a going concern. By mid-week, Citi had sold half its stake in its Smith Barney brokerage unit to Morgan Stanley (NYSE: MS). In closing, Citi reported an $8.3 billion loss and broke the company up into two pieces.

Meanwhile, banks on the other side of the pond were not doing much better. HSBC (NYSE: HBC) shares were bombarded when a Morgan Stanley analyst expressed his view that the company might need to raise about $30 billion dollars. Investors were not enthused by the prospect of a dividend cut and/or share dilution. Meanwhile, Deutsche Bank (NYSE: DB) prepared to lose 4.8 billion euro in the fourth quarter, setting it up to report its first full year loss in five decades. A Luxembourg judge ordered UBS to return Madoff invested funds to a client who had requested their return before Bernard was indicted. Tough luck for UBS, because a mere mention within the same sentence as the pariah is harmful to brand value.

The week's trouble was not limited to banks though. Apple Incorporated's (Nasdaq: AAPL) iconic leader Steve Jobs was forced to take a leave of absence due to the increased complexity of his illness. By Friday, rumors had spread regarding the possibility that Jobs might need a liver transplant. Apple's shareholders are certainly concerned about the man for many reasons, one of which is the valuation premium the shares have commanded in comparison to peers like Microsoft (Nasdaq: MSFT). Jobs' value added leadership and strategic foresight have been accounted for within Apple's share price, and the uncertain outlook immediately put that premium at risk. Finally, Intel (Nasdaq: INTC) reported revenue expectations for Q1 that were not outside of analysts' range. Thus, after warning investors a week earlier, a relief rally ensued on Friday.

On the economic front, Tuesday's ICSC-Goldman Weekly Sales Report, measuring the first full week lacking holiday shopping stimulant in some time, showed same-store sales collapsed 2.2% year-to-year. Wednesday confirmed the hard times ahead for retail, as December's Retail Sales were reported down 2.7%, a much steeper fall than forecast by economists.

Weekly Jobless Claims, also measuring the post holiday dead zone, rose again toward recent high water marks. Claims at 524K, measured far above the prior period's 470K (revised). The week's regional manufacturing surveys from the Philly and New York areas showed ongoing sector concern. Adding to trading tumult, sentiment measures from RBC and Reuters/University of Michigan sat near six-year and half-century lows, respectively.

The Consumer Price Index (CPI) offered some relief on Friday. The core figure, which excludes volatile food and energy, showed prices unchanged in December, versus expectations for a modest increase. This was welcomed news, as it seems to have left the Fed unhampered by inflation for now. The ECB concurred as it cut its target interest rate by 50 basis points on Thursday. Europe received more U.S. sourced troubles this week though, as S&P cut its sovereign rating on Greece by one notch, to A-. S&P also recently warned Greece's European neighbors Spain, Portugal and Ireland of possible rating cuts.

Hope sprouted when President-Elect Obama sought and later received the second portion of the TARP funding. On Obama's petition, President Bush requested it for him and a skeptical Senate cleared the way for its release.

The week ahead also offers hope. The survival of an airplane and all its passengers on Thursday afternoon, despite its complete loss of engine power, served to renew belief in miracles. This wonder was well-timed, as President-Elect Obama becomes President Obama on Tuesday. With him ride the hopes of not only the nation, but perhaps the world, and it seems another miracle might be needed to save it.


Please see our disclosures at the Wall Street Greek website and author bio pages found there.