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| 2012-02-17 01:45 |
STOCKS INCH HIGHER
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By Carlos Guillen
Stocks are trading slightly higher during today's trading session as investors continue to see positive
signs that the Greek debt situation will likely be solved this coming Monday and continue to receive positive data points indicating an improving
macroeconomic backdrop.
All signs continue to be positive coming from European leaders as they said that they were optimistic on prospects for
a deal on a Greek rescue package next week despite high tensions after Greece adopted a series of painful austerity measures this week. Moreover, the
European Central Bank began a debt swap arrangement to reduce losses on their holdings of Greek government bonds after Italian Prime Minister Mario
Monti and German Chancellor Angela Merkel held a conference call on the debt crisis with Greek Prime Minister Lucas Papademos. According to reports,
the three were confident that a deal can be reached on Greece at the Eurogroup on Monday.
Here at home there were some rather mixed macro
economic data results. According to the Labor Department, the Consumer Price Index (CPI-U) increased 0.2 percent in January, landing below the
Street's estimate of 0.3 percent. However, excluding the food and energy contributions to inflation, core CPI was 0.2 percent, higher than the
Street's estimate of 0.1 percent. On one hand, the fact that total inflation was less than expected is certainly encouraging for consumers as they
will likely be motivated to continue shopping. On the other hand, given that core inflation was larger than expected, the Fed may feel a bit more
restricted in terms of easing money for the longer term. Moreover, despite that both measures of inflation increased at the same rate, it should be
noted that gasoline prices jumped 0.9 percent in January, serving to remind us of the risks energy costs pose to the economic recovery. It is apparent
that part of the reason for the higher cost of gasoline reflects the recent tensions in the Middle East that have pushed oil prices higher.
Over the last 12 months, total CPI has increased 2.9 percent, decreasing from the 3.0 percent posted for December. At the same time, core CPI
has increased 2.3 percent, increasing from the 2.2 percent posted for December. Given that the Fed focuses more on core CPI, the result does not
really impede the Fed from enacting monetary policy; however, reluctance to ease money will likely increase.
Another report showed that the indexes of leading indicators improved, although not
as much as expected. Leading indicators are continuing to show that the U.S. economy is dealing well with the debt situation in Europe and the slowing
growth in China. The Conference Board announced that its index of Leading Economic Indicators increased by 0.4% in the time frame between December and
January, landing slightly below the Street's consensus estimate of 0.5% but continuing to move in the right direction. The increase represented the
fourth consecutive month of improvements to the index. The results were a clear positive; the leading indicator results were encouraging in that there
were more positive components and in that the index continued to increase. Most of all, the news was encouraging because it is signaling that the
economy will likely continue to expand through this year.
Lie-BOR
By David Urani
There's a new fraud case
picking up steam in the financial world, and while it's not getting a huge amount of attention just yet I think this is one that could really blow up.
I think this is the next big case after the robo-signing scandal, and this could even surpass it. What I'm talking about is LIBOR manipulation
accusations on several major banks. The defendants include Bank of America (BAC), JP Morgan (JPM), Citigroup (C), Barclays (BCS), Credit Suisse (CS),
Deutsche Bank (DB), HSBC, Lloyd's (LYG), RBS (RBS), and UBS (UBS).
If you aren't familiar with LIBOR (London Interbank Offered Rate), it's a
central interest rate used by banks for borrowing. It's used as a reference for several types of financial products, including futures contracts,
interest rate swaps, inflation swaps, syndicated loans, variable rate mortgages, and currencies. There's no exact measure, but people estimate LIBOR
is tied to $150 trillion to $500 trillion worth of securities (that's trillion with a T).
Last week the EU began a proper investigation into
allegations of LIBOR manipulation, and earlier this week Schwab filed a lawsuit against the abovementioned banks. New evidence today states that
unnamed insiders in UBS can confirm that traders at their firm were successfully able to tinker with LIBOR.
Given the scope and dollar value
connected with LIBOR, the claims against any accused banks could really be huge I think. It's amazing how large-scale mischief like this continues to
be uncovered. I should note that there has been suspicion surrounding LIBOR for years now, and it really started to become visible in 2008. And it's
another example of the extent to which financial regulators worldwide seem to have been asleep at the wheel when they could have been preventing these
massive crimes against our financial system. There's no doubt that a measure of criminal activity (also activity that wasn't technically "illegal" but
immoral all the same) contributed to the housing crisis.
At times it can be frustrating to hear the President criticizing the free markets for
the financial collapse. But the free market doesn't get to work properly when crimes are being committed, and cases like robo-signing, Bernie Madoff,
and the developing "LieBOR" are prime examples. For me, it's not so much new regulations and penalties that we need to put on banks. More simply, we
need to catch criminals and put them behind bars and that will go a long way in stabilizing our financial system.
Ice-Lin-d
We've been on the subject of Lin/Tebow/Santorum underdog stories this week, and hats off to Iceland which
appears to be making a valiant rebound from obscurity. Today Iceland had its bond ratings raised to investment grade by Fitch at BBB- with stable
outlook. Fitch now says Iceland will not go back into recession, and that its debt topped out at 100% of GDP last year. That's more than Europe can
say at the moment.
You might remember back in 2008 when Iceland went bankrupt. Its currency, the krona, became near worthless and as a result
people were having trouble even getting food (Iceland has poor farmland and relies on imports). That, in turn, caused the virtual collapse of its
government. The whole country erupted like Eyjafjallajökull volcano.
Are you paying attention, Greece?
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Disclaimer: Securities Operations Forum is providing this research to assist investors in determining when to buy and when to sell. All investment decisions are yours and as a result you could make or lose money. Securities Operations Forum, its employees and/or its affiliates and family members may from time to time take positions in the open market or otherwise with respect to the securities discussed, but not have stock ownership equal to or greater than 1% of the outstanding stock of the covered company nor does any employee of Securities Operations Forum sit on the Board of Directors of any covered company. The statements made herein include information obtained from sources believed to be reliable, but no independent verification has been made and we do not guarantee its accuracy or completeness. The statements made herein contain general information and do not constitute an offer to buy or sell any security. |
