May 13, 2005
Lead Stories
SEC Official: Goldman Role In NYSE Deal 'Dumb'
Stupid but probably legal is how one Securities and Exchange Commission official described the advisory role of Goldman Sachs (GS) in the proposed merger of the New York Stock Exchange and Archipelago Holdings Inc. (AX).
SEC boss warns hedge funds risk disaster
Pressure on hedge fund managers to deliver market-beating returns may lead to "disaster" and supports the need for more regulation, US Securities and Exchange Commission chairman William Donaldson said.
Ameritrade Says It Is Not For
Online brokerage Ameritrade Holding Corp. said Thursday that it is not for sale. The announcement followed recent published reports that it had received an unsolicited bid from rival E-Trade Financial Corp.
Reuters
U.S. stock exchanges have invested heavily in preparing for catastrophic events since the 9/11 attacks and efforts to upgrade computer and communications systems are especially important now that more buying and selling is expected to occur on virtual exchanges.
http://www.reuters.com/newsArticle.jhtml?storyID=8477543&type=businessNews
http://www.reuters.com/newsArticle.jhtml?storyID=8477027&type=businessNews
Derivatives Use Up Big at
The U.S. Treasury Department’s Office of Comptroller of the Currency – which is the front line regulator of US chartered banks – recently released quarterly data for year-end 2004 showing that derivatives use by
http://www.financialpolicy.org/fpfspb24.htm
Institutional Investors Pledge To Tackle Climate Change
Two dozen
http://www.institutionalinvestor.com/default.asp?page=1&SID=504836&ISS=14977&type=13
Fimat plans to acquire PreferredTrade assets
French brokerage firm Fimat is to acquire the assets of PreferredTrade, an equity broker which specializes in electronic trade services, in a move that will expand its memberships to
http://www.cbronline.com/article_news.asp?guid=503A608C-24B1-430F-8FE8-FCF1CBCA85D4
Searching for light in a murky debt pool
As jitters sweep through the credit world, bankers and regulators are scrambling to understand just how much risk is lying out in the markets. But as they embark on this endeavour, they face a daunting problem: there is remarkably little consensus on just how big the market for collateralised debt obligations is in the first place.
http://news.ft.com/cms/s/c9ea40ce-c31b-11d9-abf1-00000e2511c8.html
SEC To Morgan: Cough Up The Emails
The Securities and Exchange Commission will ask Morgan Stanley to surrender newly discovered emails "as soon as possible," according to an SEC official.
http://www.institutionalinvestor.com/default.asp?page=1&SID=503998&ISS=14977&type=23
***** Ok… let’s think about this. People send email with damaging content… why? Because they think it’s a conversation with another person, perhaps. If you stand face to face and say something, it is gone with the wind except in the memories of the two people, if no secret listening devices are in place. Even though it feels like a private conversation, email is easily monitored and it is relatively permanent, unlike verbal conversations. It’s a mode we’re unfamiliar with – instant communication with permanence. Even so, I can’t help but be amazed at the volume of email and – even weirder – memos and other paper that document questionable or illegal activity, that are produced, signed and carefully preserved.
***** Sure would make it harder to catch the bad guys if they didn’t sit down and explain all the stuff they’re doing wrong. Thanks, bad guys.
Exchange News
The Minneapolis Grain Exchange (MGEX) has named Mark G. Bagan President and Chief Executive Officer. Bagan will assume the duties of this position on July 1, 2005 after the resignation of Kent R. Horsager also effective July 1. Horsager has served as President/CEO for five years.
http://www.grainnet.com/info/articles.html?type=bn&ID=26321
CBOE To Add DIAMONDS To Hybrid Trading System After July 15
The Chicago Board Options Exchange (CBOE) announced today that it plans to add new sparkle to its Hybrid Trading System, with the addition of options on DIAMONDS (DIA) after July 15, 2005, pending regulatory approval.The addition of DIAMONDS options brings the number of index options available for trading on the CBOE Hybrid Trading System to 36, including options on the S&P 500 Depositary Receipts (SPY), Mini-Nasdaq 100 Index (MNX) and Nasdaq-100 Index Tracking Stock (QQQ).
http://www.cboe.com/AboutCBOE/ShowDocument.aspx?DIR=ACNews&FILE=20050513.doc
NYMEX to Launch Freight Futures Contracts
http://www.nymex.com/jsp/news/press_releas.jsp?id=pr20050512a
CBOT Strike Price Notice, May 13, 2005
http://www.cbot.com/cbot/pub/cont_detail/0,3206,1032+28163,00.html
Regulatory News
The SEC News Digest
The SEC News Digest provides daily information on recent Commission actions, including enforcement proceedings, rule filings, policy statements, and upcoming Commission meetings.
http://www.sec.gov/news/digest/dig051205.txt
CFTC Weekly Advisory
http://www.cftc.gov/opa/adv05/opawa20-05.htm
Linda Chatman Thomsen Named Director of the Division of Enforcement
Securities and Exchange Commission Chairman William H. Donaldson today named Linda Chatman Thomsen as the Director of the Division of Enforcement. Thomsen has been at the Commission since 1995 and has served as the Division’s Deputy Director since 2002. Thomsen succeeds Stephen M. Cutler, who in April announced that he would leave the Commission.
http://www.sec.gov/news/press/2005-73.htm
Feds seek gas utilities' records on Enron
Federal regulators have subpoenaed more than a million records from Illinois-based Peoples Energy Corp. on the natural gas company's dealings with Enron.
http://washingtontimes.com/upi-breaking/20050512-091446-4404r.htm
***** A million documents… let’s see… ten people, a hundred documents a day… see you in three years! Oh, wait, we have computers now. Say! Wonder if there’s any damaging email in that haul?
Track Data Says SEC to Start Civil Action
Track Data Corp., a financial data provider and operator of an online trading system, said Friday that securities regulators plan to start a civil enforcement proceeding against its chief executive for alleged insider trading.
http://biz.yahoo.com/ap/050513/track_data_sec.html?.v=1
SEC Charges Ex-MFS Exec Regarding 30-Year Bond Trades
The Securities and Exchange Commission said Thursday that it has filed a lawsuit against a former executive at MFS Investment Management, in connection with trades in the 30-year U.S. Treasury bond just before the government announced in October 2001 that it would no longer issue such bonds.
Managed Futures - Managed Funds
Bond index fund launched
The Bank of Thailand yesterday announced the launch of the ABF Thailand Bond Index Fund, a new fund to be listed in the local market and part of the region-wide Asian Bond Fund 2 programme.
http://www.bangkokpost.com/Business/13May2005_biz52.php
A 100-Year Hedge Fund Storm 7 Years Later?
Could this be another case of losses felt 'round the world, with repercussions rippling through the financial system and the
http://quote.bloomberg.com/apps/news?pid=10000039&cid=baum&sid=a3kuXNzq0S7g
***** Financial disasters are generally surprises. Otherwise, people plan around them. Given the fuss and scrutiny of this subject right now, I’m on the “not right now” side. We’ll see another financial disaster happen just as soon as we turn our attention so that it blindsides us.
Fed cautious on hedge fund regulation despite risk
Worries of huge hedge fund losses roiled financial markets this week but if recent comments by Federal Reserve officials are any guide, there is little chance the funds will face more scrutiny.
http://www.reuters.com/financeNewsArticle.jhtml?type=bondsNews&storyID=8476140
***** Good, they must have read my mind (curiously, nobody on the Fed committee called to chat this week). I like the word, “cautious”, especially when it is used to describe a regulatory or government agency.
Reports
Bond Talk Today's Events
http://www.bondtalk.com/global.cfm?S=todaysevents
USDA Today
http://www.usda.gov/nass/PUBS/TODAYRPT/TODAY.HTM
Miscellaneous News
Prepare for Skyrocketing Data Volumes, Experts Warn
Market data message rates are increasing an average of 120 percent a year and show no signs of abating, warned industry experts at a market data forum last week.
http://globecon.com/solutions/enterprise_application_training.html
RIAA launches new suits against distributors of illegal CDs that some say the industry relies on
Although Internet file-swapping gets more attention these days, Brad Buckles, the RIAA's anti-piracy chief, says the group's members lose more than $300 million a year from the sale of illegal physical merchandise.
http://www.newsday.com/business/ny-bzmusi4256651may13,0,7996417.story?coll=ny-business-leadheadlines
***** Maybe they should check for incriminating emails.
Daily Volumes
This is the section where John always puts how many contracts were traded for a wide variety of things. Alas, you’ll have to do without those for a couple of days as I’m more of a text person than a number person. To keep you engaged, however, here are some highlights:
Many things traded yesterday. There may have been volume records, but possibly not.
John's Jon’s Comments
Way back when the world was new, in 1998, I started a trading program for my CTA that used the 30-year T-Bond contract. Naïve and starry-eyed, I believed that because we used words like “benchmark” to describe the commodity, and because there was such a heavy reliance on it in the world, it would be here to stay.
In 2001, though, the government shrugged, and the 30-year Bond fell off the shoulders of the domestic economy. Among the reasons given for this move (about which I’m not bitter, really I’m not), was that we didn’t need to raise money that way anymore. We had so much money in the Federal budget, why, we didn’t need to do deficit spending anymore!
I love to make comparisons, even if they’re not totally valid, because it is fun to do. This is like a median-income family going deep into personal debt because they are overspending their household income by a few thousand dollars every month. The person at work gets a big bonus one year because their company does well, and in celebration of actually having a bit more than is necessary to pay the bills, the worker cuts their work hours down to a four-day week.
I could add that this hypothetical family didn’t actually pay off any of their debt – instead, they paid their bills and then spent the extra amount on some really useful things like purple paint for the chimney on their house, and a lot of dog food in case they were to buy a dog someday. But of course, there is no parallel between this behavior and what the
Lo and behold, the next year things were back to normal and no bonus was issued. How smart was it, for the worker to cut their hours back? Suddenly, not very. Not only will a full work week need to be resumed, but extra debt was accumulated while the family waited to discover that there was no bonus this year. Back to earning full income, the family is still right back where they started, spending more than they make. In the end, the clever decision to cut back turned out to look pretty stupid.
Now, back to the real world. To me, it looks just the same. We cut the income stream from the 30-year bond because (among other things) we had “enough” money to run the country. That the monster national debt was ignored was a howler in of itself, but the short-sightedness of the move was a pretty good one too. It’s… what… 2005, now? Just a few years later, and the same governmental behavior that sprayed money around that we don’t have, is back. But we’ve lost ground, because while we hum and fuss about whether to put back an income source, we are racking up new debt.
It’s almost like there is a pervasive belief that when you do deficit spending, as soon as the year is over, you don’t have that debt anymore. Oh, how I wish that were true, because out there somewhere is a $30 million boat I want to buy that way.
In the end, though, the responsibility for the foolishness we see in money and debt management at the Treasury level is our own. We fuss about the deficit, but since we don’t agree to accept more pain in our lives in the form of service cuts, we let it happen anyway. We complain about the government’s lack of funds, then argue about whether a tax cut is good or bad for us and the economy, and in the end allow the government to remove a giant chunk of money coming in. “Debt is good,” but not so much debt that you can’t breathe. Tax cuts stimulate growth, but as much as we’re paying out obscene levels of income when all taxes are considered, being eleventy jillion dollars in debt is just not the right time to cut the income.
Anyway, as always, my written opinions are only my own and not necessarily even that. I have no particular political agenda, as I am not a “Libertarian” or a “Republican”, as much as I consider myself to be an “AntiStupidarian”. I am not an expert on any subject other than my own breathing, and I firmly believe that expertise is too freely granted in the world.
If you’d like to pat me on the back and tell me how clever we are, send email to jonm@defendercapital.com. If you’d like to tell me how misguided I am, you can use the same address, and I’ll try to figure out which is which.
John Lothian is back on Monday, but don’t get too comfortable. I’ll be here again next week for another couple of days.
Regards,
John J. Lothian
Jonathan Matte
Pinch Editor
John Lothian Newsletter
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