Modern News

It’s too early to predict the economic damage of the BP oil spill in the Gulf of Mexico. However, preliminary indications are encouraging. Mike McKee of Bloomberg TV reports that the impact could be relatively modest if the spill continues to drift away from the coast.

The fishing industry could take a hit, and there may be a sharp rise in seafood if Louisiana is heavily impacted. (About 80% of the Gulf’s output comes from Bayou State fishermen). Real estate and tourism could also be impacted. But the impact on global oil prices looks to be slight.

So we can go back to worrying about Greece and the Euro.

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Standard & Poor’s cut Spain’s credit rating to AA today, which is still investment grade, but puts it on a par with Slovenia’s. This follows cuts in the ratings of Greece and Portugal.

These downgrades highlight the two fundamental challenges facing the EU: 1) does currency union make sense among countries as disparate as Germany and the southern tier?, and 2) Will the more well-heeled countries be willing to pay the price to maintain it?

It also highlights the downward path of the spendocracy that has taken control of many countries, and what awaits the USA if we don’t mend our ways.

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Saudi Prince Alwaleed bin Talal is a major player in the investment world. Bloomberg’s Erik Schatzer interviews Alwaleed about the current state of Wall Street. I had never listened to an interview with Alwaleed before, and was struck by the common sense of his perspective. And by the irony that he appears to have a better understanding of our system than many in Washington DC.

Some major highlights:

-Alwaleed hopes that the government does not have a vendetta against Goldman Sachs, which would destabilize the financial markets, and cautions that the firm is innocent until proven otherwise.

-Financial reform is a necessity and will happen. Republican opposition to the current bill is part of the negotiating process.

-Citibank’s recently reported earnings of $4.4 billion is proof of the value of its global franchise, and CEO Vikram Pandit has his confidence (Alalweed is a major investor in Citi).

-Alalweed’s Kingdom Holding Company, which went public a few years ago, will soon declare dividends in order to satisfy Saudi retail investors, who carry more clout in their system than institutional investors. (Now that is change one could believe in here!)

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Investing legend Warren Buffett has criticized the role of derivatives in causing the 2008 financial meltdown. However, the talk on the street is that he is lobbying to exclude existing transactions from the scope of the pending finance reform bill.

It is not hard to see why. Berkshire Hathaway owns over $60 billion of such contracts, which are hedging the financial risk exposure of its vast corporate empire. Buffett would prefer not to subject these holdings to the requirement to post collateral that is embedded in the bill.

One wonders whether the outcome will be the ususal Washington DC “reform” product- a bill riddled with exceptions, exemptions and grandfather clauses that give the politically connected an advantage versus their less savvy peers.

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SAN FRANCISCO (Reuters) – Apple Inc posted quarterly results that blasted past Wall Street’s expectations, led by strong sales of the iPhone.
The company on Tuesday reported net income of $3.07 billion, or $3.33 a share, in the fiscal second quarter ended March 27, up from $1.62 billion, or $1.79 a share, in the year-ago period.
(more…)

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SAN FRANCISCO (Reuters) – Yahoo Inc exceeded Wall Street’s earnings expectations in the first quarter thanks to the sale of some of its assets and its search deal with Microsoft, but the company’s revenue fell a hair short of Wall Street expectations.
Shares of Yahoo were down about 1 percent after closing the regular Nasdaq session nearly flat at $18.38.
(more…)

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LONDON (Reuters) – Thomson Reuters Corp launched a global, high-speed network on Tuesday for financial firms to access real-time data as well as share information with each other directly.
The company’s new network, called Elektron, includes hosting centers in New York, Chicago, London, Frankfurt, Tokyo and Singapore, with more to come in Hong Kong, India and Brazil later in the year, all connected by a fiber optic ring.
The company is operating the system in partnership with data center company Savvis Inc.
(more…)

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The SEC announced a blockbuster lawsuit against Goldman Sachs today that goes to the very heart of Wall Street’s role in the subprime bubble. The SEC claims that Goldman knowingly allowed hedge fund manager John Paulson to play an active role in selecting CDO’s for Goldman’s structured offerings while simultaneously shorting those securities. If true, this would be a mind-boggling conflict of interest. Bloomberg’s Peter Cook reports:

As Bloomberg’s Roben Farzad explains in another interview, Goldman is accused of enabling Paulson to come up with a self-fulfilling prophecy. Goldman took part of Paulson’s long CDO position off his hands, presumably the worst part, and then Paulson coined more money from shorting this former holdings.

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James Volker, CEO of Colorado-based Whiting Petroleum Corp., appeared on Bloomberg Television to discuss his increasingly bullish outlook on oil. Consumption is rising, inventories are shrinking, and crude prices are on the rise. Whiting believes crude should reach the $88 price level later this year.

In response to this new economic environment, Whiting is doubling its exploration budget. One wonders whether Washington DC has heard of this novel approach to dealing with rising energy prices.

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Jim Chanos, hedge fund manager and founder of Kynikos Associated Ltd., achieved fame outside the investment world when he publicly questioned Enron’s financial reporting. He is now casting a skeptical eye on the Chinese economy.

Chanos believes that China has developed a huge real estate bubble that is about to burst. While there has been a lot of buzz about the need for China to revalue its currency, a real estate crash could force the opposite- devaluation.

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