- Score one for Volcker. The fact that Obama named his bank-regulation plan the “Volcker Rule” is a major victory for the former Fed chairman, former IMF chief economist Simon Johnson says.
- Yves Smith says plans to limit prop trading “sounds well and good,” but she’s also skeptical. “Given how derivatives reform was gutted and health care reform was botched, what do you think the odds are that something with teeth will be voted in?”
- Seems a bit odd NY Times will wait a year before implementing its metered pay system, but MediaMemo blogger Peter Kafka reminds that building pay walls involves some work.
- Of course just because NYT models its pay wall after the FT’s doesn’t mean it’s going to be successful. FT’s coverage is more unique and specialized than New York Times and folks subscribing to business-oriented sites are more likely to expense their bills, Newsosaur blogger Alan Mutter says.
- Check out one of the latest additions to the blogosphere and twitterati. You may have heard of him.
- Goldman Sachs’s (GS) compensation ratio for 2009 dropped to an all-time low of 36% of revenue. That compares to 62% for Morgan Stanley (MS). But Reuters blogger Felix Salmon wonders if Goldman’s lower comp is sustainable or just a on-off.
- Two ways to view today’s unexpected rise in jobless claims: economy’s prepped for a fresh round of trouble or the recovery will take longer than expected and “deliver subpar performance for an unusually long time,” James Picerno writes at The Capital Spectator.
- Amazon (AMZN) wants to have an app for that, too. It plans to open the Kindle up for developers to make “active content,” That likely means apps, although Digital Daily blogger John Paczkowski notes Amazon refrained from using that word in its press release.
- Regional banks traded higher while the banking giants plummeted. “Wall Street clearly sees the smaller players as winners if Obama succeeds in reining in the titans,” Tom Petruno writes at LA Times’ Money & Co. blog.
- Apple (AAPL) sees new money in old media. CEO Steve Jobs is betting the tabled can reshape textbooks, newspapers and TV much the way his iPod revamped the music industry.
Maybe he’s just searching for a popular cause to boost his approval ratings, after Tuesday’s stinging rebuke from the electorate, but President Obama dropped a bombshell on the banks today. And if it seems like the White House has declared war on the banks, well, it does seem like that, doesn’t it?
US stocks sell off sharply after President Obama unveils his bank plan, which smacks of Glass-Steagall — and smacks the banks between the eyes.
DJIA skids 213 (2%) to 10390, its worst one-day selloff since Oct. 30. S&P 500 loses 22 (1.9%) to 1116, Nasdaq Comp drops 26 (1.8%) to 2266. Treasurys surge, crude drops. Dollar’s flat, apparently over fears that the Obama proposal, which he dubbed the “Volcker Rule,” would squelch a nascent recovery.
We’re not exactly sure about that, what with Republicans already speaking out against it, and Barney Frank talking about delaying it for several years. But it does seem like the simmering resentment about the banks and their sweetheart bailouts, resentment the White House has been trying to keep a lid on, is suddenly getting a full venting. And Lord only knows where it goes from here.
The President’s proposal would prohibit banks from having both proprietary trading desks and commercial banking operations. And while it seemingly came out of left field — we’d love to have seen any of the 30 dozen spit-takes that erupted across Wall Street just before noon — it’s the President’s second major grenade lobbed at the banking sector in, what, a week?
Hell hath no fury like a President diving in the polls.
Well, it may not quite be war, but President Obama’s proposal to shave off banks’ proprietary trading desks hit the sector like a gauntlet. Also today on Tomorrow’s News Today, we’ll touch on Goldman’s earnings and the red flags raised in today’s jobless claims.
If Tuesday was the Brown Rally, is today the Obama Selloff?
US stocks get hammered after President Obama announces measures to limit bank risk-taking, which seem to have taken Wall Street by surprise.Dow industrials on pace for their second consecutive triple-digit decline and fourth consecutive triple-digit move dating back to last week. The last time the Dow finished the day with four consecutive triple digit moves (up or down) was back in May.
“We continue to believe the secular bear market is with us, and such policy action creates a sense of uncertainty that is simply staggering,” the Pragmatic Capitalist blogger says. “Stocks cannot and will not rise substantially when the government appears to be on the attack against Wall Street.”
Obama’s remarks should provide a greater good down the road, but they also have “potential to cause a great deal of near-term volatility,” blog says. “Uncertainty is a market’s worst friend and there is a growing abundance.”
Isn’t kind of amazing that corporate earnings season is getting so overshadowed by so many other things?
Heading into the 4Q and year-end reporting period, most people, certainly most folks on the Street, expected earnings reports to fuel another leg of the rally, given that earnings were almost guaranteed to show spectacular growth after last year posting the worst fourth-quarter ever. But it hasn’t worked out that way, as various macro issues have taken center stage:
- China. This is the beauty, and the danger, of a command economy: last year, the Chinese central bank, like many of their counterparts, flooded the domestic market with liquidity. But the Chinese in addition basically ordered their banks to make loans, which they did. In spades. The upshot of all that was a blistering fast recovery, with Chinese GDP above 10% in the fourth-quarter. The problem is, now they have a potential bubble on their hands, and they’ve been spending January trying to tamp it down.
The problem for the rest of the world is that just as everybody is hitching their wagons to the Chinese horses, the horses are getting pulled off the track. Oops.
- Greece. The credit crisis started on a personal level, with individual home owners — lots and lots of them — falling behind on their mortgages. Then it became a banking problem, a big one, big enough to tank the entire financial system. That’s when the state stepped in.
So what gives? Did Geithner and Bernanke forget to put in the government’s S&P futures buy orders orders this morning, or what?
Kidding aside, caught a quick glimpse of Tim on TV, standing off in the wings (behind even Barney Frank) as President Obama scolded bankers, and he looked a little distracted.
Stocks are taking as bad a beating as we’ve seen in a while, with financials among the leading decliners after the president essentially said he’s about to get medieval on the big banks. But it’s not just about financials, today.
In fact, materials stocks doing even worse, and industrials aren’t too far behind. Steel companies, miners, chemical makers, all awful and likely linked to chatter about China trying to cool off, as well as diminished faith that the US economy has any sustainable momentum. (Latest tally of emergency unemployment compensation claims – up 652,000 — is a real kick in the gut.)
There’s no denying President Obama just threw down the gauntlet on the nation’s biggest banks.
In a nutshell, Obama detailed a new plan that would would force financial institutions to choose between commercial banking and proprietary trading, while also limiting the size of big banks. WSJ has the details:
Admistration officials said the new rules would force major institutions from J.P. Morgan Chase to Bank of America to decide the direction of their business. Banks shielded from risk through federal-deposit insurance, or aided in financial crises by low-interest loans from the Federal Reserve Board, would no longer be allowed to engage in trading unrelated to their customers’ interests, one senior administration official said.
Under the proposed rule, commercial banks would be prohibited from owning, investing in or advising hedge funds or private equity firms. Bank regulators would not be simply given the discretion to enforce such rules. They would be required to do so.
“You can choose to engage in proprietary trading, or you can own a bank, but you can’t do both,” the official said.
Some of the comments from Obama’s speech were also pretty astounding, proving he’s not taking this situation lightly. Two separate quotes from the president particularly stand out:
US stocks are selling off sharply for the third time in the past four sessions (closed Monday for MLK Day.) Is this the big one? Since at least June, every time the market has appeared on the verge of a selloff, the doubters (us included) have come out of the woodwork, waiting to see if the miracle rally of 2009 will finally evaporate into the thin air.
It hasn’t happened yet. There have been a couple of times when it appeared imminent, but each one was met with a renewed bought of buying. With the DJIA down more than 2% since last Thursday’s close, people (us included) are already perching on the edge of their seats, waiting to see if this is finally the one.
“Probably not,” Barry Ritholtz of The Big Picture fame says in his daily comments out of his FusionIQ outfit, “especially when pervasive concern continues to be the dominant investor theme.” A correction of 5% could be in the offing, he says, but “we continue to find it hard to believe that top is in play when everyone continues to call for it! After all tops are formed when everyone becomes so comfortable with stocks they invest all their available liquidity without a hesitation or care in the world. And clearly that is not the current sentiment.”
While there’s been a dedicated band of doubters (yes, us included,) it does seem that the general consensus on the Street has been that the bottom was hit and it’s only up from here. But whether or not the market’s anticipating a correction, one thing is clear: given last year’s run-up, the easy money’s already been made.
I find it odious that an unnamed Labor Department economist tried to explain away the rise in jobless claims by claiming it was an administrative backlog that created the rising number. From the Dow Jones story (subscription required):
An economist at the U.S. Labor Department Thursday said last week’s numbers were higher then expected in part because the Christmas and New Years holidays created a backlog in some states.
“It is not an economic thing — it is an administrative thing,” he said.
Think it feels administrative to the poor souls who got fired and had to wait to file claims because government offices were closed the Friday of Christmas? Besides that ugly swipe at the populace, does it matter that there was a backlog in processing claims? The people who are unemployed, are still unemployed.
But beyond the rise in initial claims, there was a jaw dropping rise in emergency extended benefits. These are the second, third and even fourth round of benefits people file for, long after the initial filing. But we had to look at this week’s numbers twice, just to make sure we were reading it correctly.
US stock futures roughly flat to a tinge higher premarket, suggesting not much snap-back from yesterday’s broad selloff.
But there’s a couple items before regular trading gets underway which could certainly change the complexion, including Goldman Sachs’ 4Q earnings and weekly jobless claims, due at 8:30 a.m. We’ll also see Philly Fed’s January manufacturing index and Conference Board’s December leading indicators at 10:00 a.m.
Solid results out of eBay and Starbucks late yesterday; EBAY up about 8% premarket. Google and American Express report after the closing bell.
US dollar index holding gains, up 0.4% at 78.67 and probing levels not seen since early September. S&P futures up 2.10; 10-yr lower, yield at 3.67%.
J.P. Morgan reported some strong earnings today. But what this bloggers eye were some of the sub-numbers in the earnings report. The bank booked $1.8 billion in investment banking fees. But don’t be fooled – that wasn’t from big M&A advising. But $429 million was in advisory fees. Instead, that $1.3 billion + remaining fees […]
The bridge that collapsed on Interstate 5 bridge over the Skagit River in Washington was listed as “functionally obsolete” and “fracture critical,” which means the whole sha-bang could come tumbling down if one major part fails. Click here to read the details from USAToday. This sort of thing shouldn’t be happening in a modern, developed nation. Barry LePatn […]
