The 64-year-old Mack will remain as Morgan’s Chairman when Gorman, 51, takes over the CEO post on January 1, the company said.

Mack came under criticism as he scaled back Morgan’s risk profile even as rivals like Goldman Sachs Group Inc. (NYSE: GS) regained momentum as the worst economic downturn since World War II began to wane, according to the Associated Press.

“Gorman has really earned his stripes,” Anton Schutz, president of Mendon Capital Advisors Corp., which owns Morgan Stanley shares, told Reuters. “He did a great job at Merrill, he’s doing a good job at Morgan Stanley, and the timing for a change seems to be good, because we’ve made it through the worst of the crisis.”

Before joining Morgan in 2006, Gorman had held a series of positions at Merrill Lynch & Co. Inc., including leading its global private client business from 2001 to 2005.

Morgan received $25 billion in federal funds under the Troubled Asset Relief Program (TARP) last year, and has since repaid the entire amount to the U.S. government.

Source: Morgan Stanley CEO Steps Down, Will Remain as Chairman

The financial services industry in the United States and Europe is still reeling from the financial crisis, shedding tens of thousands of jobs each month – even a year after the crisis hit its apex.

However, recent evidence suggests that the financial services industry in Asia – particularly China, which was largely isolated from the toxic assets that caused the crisis – is starting to rebound.

Indeed, many global financial firms are picking up hiring in Asia even as broad unemployment continues to rise. The reason: These financial firms want to be most active in the region of the world that has the best potential for growth, as well as the best opportunities for profit.

“The death of the industry has been greatly exaggerated,” Matthew Hoyle, founder of Matthew Hoyle Financial Markets, a Hong Kong-based headhunter for the banking and hedge fund industries, told the New York Times. “I am actually quite excited about the prospects for the rest of the year,” adding that “Things have picked up here — unlike in Europe and the United States, where that’s absolutely not the case,” he added.

Financial firms slashed 19,000 jobs in August – the 21st consecutive monthly drop for the industry, according to payroll processing firm Automatic Data Processing (ADP). The finance and insurance sector has shed 332,000 jobs since the recession began in December 2007. And the losses will likely keep piling on.

Labor Department data set to be released today (Friday) is expected to show the U.S. unemployment rate surged to 9.6% in August after dipping to 9.4% in July. From December 2007 to July 2009, the economy as a whole shed 6.7 million jobs.

“There’s a gradual improvement in labor markets underway in the sense that the monthly losses are diminishing,” said Joel Prakken, chairman of Macroeconomic Advisors LLC and an ADP spokesman. “The disappointing news it that we have several more months to go of job losses.”

There’s a similar story unfolding in Europe, as well. The unemployment rate across the 27 European Union countries rose to 9% in July from 8.9% in June, while the unemployment rate for the 16 countries that use the euro jumped to 9.5%, according to Eurostat.

As in the United States, many of the job losses have been sustained in the financial services sector. European banks and financial firms have cut 140,000 jobs since the third quarter of 2007, according to data compiled by Bloomberg.

About 84,000 European finance jobs are expected to hit the chopping block this year, according to a recent report by City of London Corp.That’s nearly ten times the number of finance jobs the region lost in 2008.

As the Europe’s largest employer of financiers, the United Kingdom will be most affected. It is expected to lose up to 35,000 finance jobs this year.

Employment at British, French and German financial services firms won’t return to its early-2008 highs until at least 2013 the report said. Even then, the United Kingdom will have 10,000 fewer finance jobs than it did in 2008.

The EU financial services industry employed about 1.4 million people and was worth about $315 billion (219 billion euros) at its peak in 2008, according to City of London. However, the entire industry will shrink 6.2% in 2009 and not return to growth until 2011.

“I’m fairly optimistic on the financial sector returning to profitability, but that won’t necessarily feed through to dramatic employment growth,” Alistair Milne, a senior finance lecturer at London’s Cass Business School, told Bloomberg.

Financial firms will be focused on “growth efficiency” over the next four years and “earning money out of the staff they’ve got at traditional businesses” such as fixed income, equity trading and derivatives trading, Milne said.

Asian Growth a Beacon for Financial Firms

While the financial services sectors in the United States and Europe continue to shrink, finance firms operating in Asia are already rebuilding.

Standard Chartered Bank said last month that it would recruit 850 bankers in the next 12 to 18 months. The majority of those hires will take place in China, but significant numbers will also to be added in Singapore and Malaysia.

“We have aspirations to double the industry growth rate and double our customer numbers in three years,” Foo Mee Har, Standard Chartered’s global head of premium banking, told the Telegraph.

Household wealth in Asia, outside Japan, was expected to grow by 12% annually until 2012, she added.

Meanwhile, HSBC Holdings PLC (NYSE ADR: HBC) said last week that it is recruiting more than 100 staff members in Hong Kong, and it plans to add 1,000 employees in mainland China this year.

Vincent Cheng Hoi-chuen, chairman of HSBC’s Asia-Pacific unit, even said that his company hopes Shanghai will grow into a financial center that rivals Hong Kong.

“I sincerely hope that Shanghai will become a financial center, as China is able to have two centers, given its size,” he said. “There should be enough capacity for companies to list in both or either market at the same time, despite more and more companies planning to go public in the capital market.”

And Australia and New Zealand Banking Group, which competes with Standard Chartered, expects to increase its staff in the retail banking business in China more than 10-fold to over 500 by 2012. The company is currently moving ahead with a plan to open more than 20 branches in the country by 2012, up from three currently.

In addition to these recently released plans:

• Bank of America Corp. (NYSE: BAC) added five senior staff to its Asia Pacific Commodities team and JP Morgan Chase & Co. (NYSE: JPM) added seven members to corresponding Asia commodities unit.
• Credit Suisse Group AG (NYSE: CS) added nine specialists to its Asia sales and trading business. (Credit Suisse’s Asia-Pacific operations are on track to contribute 25% of the firm’s total revenue in coming years.)

• And Citigroup Inc. (NYSE: C) said it plans to expand its commodity team in Asia at a “double-digit” pace in a bid to capitalize on rising demand for raw materials.

“Asia will be the biggest contributor to growth in commodity consumption,” Ananth Doraswamy, regional head of commodities, toldBloomberg in an interview from Singapore. “We will need more people in energy trading and metal sales, as well as agricultural products.”

A survey by Singapore-based recruiting firm Robert Walters showed that job advertisements in Hong Kong, Singapore, China and Japan jumped 6.4% in the April-June quarter from the three months prior, the New York Times reported.

That’s not surprising considering that unemployment in Hong Kong, Singapore, and Japan – at 5.4%, 3.3%, and 5.7% respectively – are still relatively low when compared to the United States and Europe. And while unemployment is still an issue in China, that country’s economy expanded by 7.9% in the second quarter, exceeding most analysts’ expectations, and lending credence to Beijing’s goal of 8% annual growth.

Indeed, the finance industry seems to have found greener pastures in Asia, where economic growth is still taking place.

“Asia is seen as a growth market,” Robert Walters’ Mark Ellwood toldThe Times. “Companies are not going out all guns blazing again, but there is once again an appetite to hire in certain areas.”

Finance Jobs Going Where the Growth Is – Asia ]]> http://www.contrarianprofits.com/articles/finance-jobs-going-where-the-growth-is-%e2%80%93-asia/20377/feed 0 http://www.contrarianprofits.com/articles/will-citigroup-lose-its-top-energy-trader/19500 http://www.contrarianprofits.com/articles/will-citigroup-lose-its-top-energy-trader/19500#comments Tue, 28 Jul 2009 15:00:35 +0000 Jason Simpkins http://www.contrarianprofits.com/?p=19500 With a deadline looming for financial firms that received government bailout funds to submit their 2009 compensation plans to Treasury Department’s pay czar, there’s a possibility that Citigroup Inc. (NYSE: C) will lose the head of its secretive and extremely profitable energy trading arm.

The Wall Street Journal recently reported that Andrew J. Hall, head of Phibro LLC – Citigroup’s energy trading unit - is pressing the company to honor a 2009 compensation package that could be worth as much as $100 million. Such a lofty payout would put Citi at odds with Kenneth Feinberg the Treasury Department’s newly appointed pay czar.

Citigroup, which reported a net loss of $27.7 billion in 2008, received $34 billion in funding from the Troubled Asset Relief Program (TARP).…

Ask U.S. Rep. Maxine Waters, D-CA, about credit default swaps and she’ll offer this warning: Ban them now or expect a reprise of the ongoing global financial crisis – which the derivative securities helped create. When it comes to elected officials, Congresswoman Waters is not one I would typically feel that I have a lot in agreement with.

A representative of a low-income district in Los Angeles, Waters is a senior member of the House Committee on Financial Services and has distinguished herself in the past by her sharp attacks on the financial sector and capitalism in general – what her own Web site describes as her “no-holds-barred style of politics.”

However, Congresswoman Waters’ bill to prohibit credit default swaps – introduced last Friday (July 10) – is strangely appealing, even for a crusty old capitalist like myself.

If you want a more pro-capitalist confirmation of Waters’ view (andGeorge Soros doesn’t count) try Warren Buffett’s sidekick Charles T. Munger, who has called the CDS prohibition the best solution, and said “it isn’t as though the economic world didn’t function quite well without it, and it isn’t as though what has happened has been so wonderfully desirable that we should logically want more of it.”

Waters has also pointed out – quite reasonably – that unless credit default swaps are banned outright, “the industry will find a way to loosen standards and widen exemptions for customized contracts and we will be right back to where we are today.”

When There’s No “Free” in Free Market

As a free-market enthusiast, my natural instinct is to resist such calls. But I have to recognize that, as we speak, we’re actually not operating in a free market. Key U.S. banks were bailed out by the U.S. government last fall, after which such financial institutions as Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE) and Citigroup Inc. (NYSE:C) have been permitted to carry on as though nothing bad ever happened.

Furthermore, a number of big players in the CDS market – most notably Goldman Sachs Group Inc. (NYSE: GS) – were bailed out through the rescue of busted insurer American International Group Inc. (NYSE: AIG). In that case, the government injected $180 billion into AIG, largely to allow it to make good on the CDS contracts it had written – $13 billion of which were with Goldman Sachs.

If Citi, Fannie, and Freddie had gone bankrupt – as they would have done in a free market – and Goldman had lost the best part of $13 billion (which might well have sent it bankrupt in turn) the financial market today would look very different. The financial industry would be rife with unemployment and apple-selling ex-Citibankers would be on the streets of New York keeping bankers’ salaries and bonuses way down from their pre-crash levels.

But such as it is, Goldman Sachs is said to be heading for record profits in 2009, and its partners are expecting record bonuses. The investment-banking firm reported stellar second-quarter profits of $3.44 billion yesterday (Tuesday). [For a related story on Goldman Sachs’ quarterly financial report that appears in today’s issue of Money Morning, please click here.]

If U.S. taxpayers are going to be called on to subsidize the very banks that got us into this mess – just so these institutions can continue to carry on as if it was still 2007 – then another expensive and damaging financial crash is almost certainly in the making.

There are a number of product areas in which such a crash might occur, but for my money, credit default swaps top the list. That makes it crucial for us to at least rein in the derivative securities with the utmost urgency. And Congresswoman Waters makes an excellent point when she says that it may prove impossible to rein in credit default swaps without actually banning them altogether.

If You Can’t Beat ‘Em, Ban ‘Em

Indeed, there are two fundamental problems with CDS securities, neither of which appears easy to solve:

• First, there is no watertight way of settling credit default swaps in case of default. The current method is by a mini-auction of the obligations on which the swaps are written to determine a settlement price. But this doesn’t work because the mini-auction relates to only a few million dollars of paper, whereas the credit default swaps in question may have a nominal value of billions – hence it’s in the interest of holders to play games at the auction and distort prices. This might not be a problem for non-participants in the CDS market, but it causes huge risks to the financial system – which in extreme cases, must be bailed out by taxpayers, as was the case with AIG.

• The second problem is that holders of credit default swaps have an incentive to push companies into bankruptcy. In the 1930s, short sales of stock (except on an “uptick”) were prohibited to prevent speculators from driving companies into bankruptcy. Well, the leverage available on CDS securities is much greater than on stock, and in the case of financial institutions, the amount of CDS outstanding is also much greater. That means speculators have correspondingly more incentive to load up on CDS and push a company into bankruptcy.

And it doesn’t end there: Since CDS holders also hold a company’s debt, their position in bankruptcy negotiations is a completely false one. This has already been a problem in the bankruptcies of the Canadian paper company Abitibi-Bowater and the shopping centre developer General Growth; it also caused problems in the massive General Motors Corp. (NYSE: GMGMQ) reorganization.

The stellar bonus prospects of the lucky employees at Goldman Sachs, in a year that has been thoroughly lousy for legitimate financial business, are an indication that we are not currently operating in a free market. Credit default swaps provide a means whereby Wall Street insiders can make huge amounts of money on corporate bankruptcies and disrupt the U.S. economy while doing so.

Until we can be absolutely sure that the poisons of the most-recent global financial bubble have been fully eradicated from the financial system, the safest measure is to ban those financial products like CDS that seem likely to cause the most trouble.

Congresswoman Waters may go too far in wishing to ban credit default swaps altogether. However, I see no reason not to impose a five-year moratorium on the securities.

If, by 2014, the poisons of speculation have been removed from the world’s financial system, and a newly sober Wall Street can convince us that credit default swaps are both useful and sound, the derivative securities can then be reinstituted on a controlled basis, most likely restricted as swaps on “indices” of credit representing an entire sector or country, rather than on single companies alone. That would make it more difficult for CDS dealers to engage in their dangerous bankruptcy games.

Perhaps Goldman Sachs employees can do without that third Porsche – at least or now …

Source: Here’s Why It’s Time to Ban Credit Default Swaps ]]> http://www.contrarianprofits.com/articles/here%e2%80%99s-why-it%e2%80%99s-time-to-ban-credit-default-swaps/19101/feed 1 http://www.contrarianprofits.com/articles/inflation-may-show-it%e2%80%99s-ugly-head-big-week-for-bank-earnings/19024 http://www.contrarianprofits.com/articles/inflation-may-show-it%e2%80%99s-ugly-head-big-week-for-bank-earnings/19024#comments Mon, 13 Jul 2009 15:00:33 +0000 Christian Hill http://www.contrarianprofits.com/?p=19024 Monday

Earnings Announcements: Novellus (NVLS)

At that time, we recommended readers go the route of John Templeton and pick up some penny stocks in the S&P 500. Moreover, just ten days later readers who jumped in were rewarded with a 437% gain.

We could be setting up for a similar situation.

The stock split does change the dynamics – mostly emotional – of the current stock plunge. Investors feel better about selling at $9.00 than they did at .40, even though the value might be the same.

On the other hand, we could see this stock slip much lower that it did in March simply because the dynamics of short sellers and a higher price come into play.

While the news today has been centered upon the government approving bonuses for AIG employees, it’s not terribly important. Most of the big news concerning AIG, and the main reason it has fallen so much, is because Citigroup (NYSE: C) reported that AIG might have no shareholder equity.

Ouch. But how does that change things?

Regardless of whether this stock sinks lower – or much lower – as an investor/speculator considering the long-term movement of this stock you need to ask yourself two things.

One, are the long-term prospects of this stock any different than they were in March? Two, do you think the stock will go bankrupt? If you can easily answer these questions, than you have a good idea of why AIG could be another great short-term investment.

We’ll be keeping our eye on this one. Today the price is down to $8.5 – and as the stock price moves closer to $7, the more interested we’ll be.

Source: As AIG Sinks, Its Value Rises

• Declining manufacturing and construction sectors contributed tothe United Kingdom’s gross domestic product to fall by 2.4% in the first quarter, the most in more than 50 years, The New York Times reports. Citigroup Inc. (NYSE: C) economist Michael Saunders said the second quarter, which ended yesterday (Tuesday), would also probably show contraction but the recession should be nearing its end soon. Despite this, he said, “I don’t think the recovery will be strong in the U.K.”

• The hemorrhaging in the housing market is slowing as The Standard & Poor’s/Case-Shiller index of 20 major cities showed the smallest monthly decline in prices since June 2008. The index dropped by 18% in April from the year before, but for the third month in a row it was not a record decline. “It seems that some stabilization may be appearing in some of the regions,” S&P index committee Chairman David M. Blitzer told The Associated Press. A rising unemployment rate and foreclosures could halt any substantial turnaround as the number of homeowners at least two months behind or in foreclosure jumped in the first quarter from the previous quarter, the Treasury Department said yesterday (Tuesday).

• General Motors Corp. (OTC: GMGMQ) was in bankruptcy court seeking approval to sell its best assets to a new, smaller company supported by billions in government loans and unburdened by old debts. Judge Robert Gerber sorted through several motions pertaining to GM’s plan to emerge from bankruptcy as a leaner company, cutting off some arguments with “please do not duplicate any other objections,” according to an AFP report. Should the 850 objections by creditors be dismissed and GM emerges from bankruptcy, creditors can appeal.
• Fears of rising food costs were partially quelled as farmers planted an unexpectedly large crop of corn and soybeans this year, according to an Agriculture Department report. A record 77.5 million acres of soybeans were planted through June, while 87 million acres of corn were planted, up 1 million acres from last year and the second largest corn acreage in more than 60 years. The corn boost is giving new life to ethanol producers, who are slowly starting to ramp up production and look at reopening plants that were shut down last year when grain prices skyrocketed and oil prices fell, Advance Trading Inc. commodity research analyst Brian Basting told The Associated Press. “It appears to be a slow healing process” in the ethanol industry, Basting said. “We’re seeing the (profit) margins creep back into positive territory.”

• American International Group Inc. (NYSE: AIG) got a new board of government-approved directors at its annual meeting yesterday in New York, Reuters reports. The U.S. Treasury Department or the trustees overseeing the government’s stake in the company recommended the election of at least seven board members. Outgoing Chief Executive Officer Edward M. Liddy said he was confident the new board would name a new chairman and CEO. The U.S. government owns an almost 80% stake in AIG.

• Troubled Japanese chipmaker Elpida Memory Inc. has received a $1.7 billion bailout in public and private funds. The move is meant to salvage Japan’s only major maker of dynamic random access memory chips used in PCs, as well as 6,000 workers at Elpida, which suffered record losses last year when semiconductor demand went south. “It’s a fine balance,” Credit Suisse Group AG (NYSE ADR: CS) Chief Equity Strategist Shinichi Ichikawa toldThe New York Times. “Japan has decided it must save Elpida for the sake of Japanese industry,” but “going too far means keeping zombie companies alive.”

Source: Investment News Briefs Wednesday July 1, 2009

It’s enough to make you succumb to the Two Minutes’ Hate.

But let’s face the truth. As egregious as salary escalation seems – coming as it does on the tail of the worst U.S. banking crisis since the Great Depression – the reality is that this is the U.S. government’s fault. After all, it was the U.S. Federal Reserve and the Obama administration that created all the bailouts and the special-loan-subsidy schemes for banks that would otherwise have been on their last legs.

In a truly free market, ex-Citibankers (NYSE: C) would be on every street corner of Manhattan – selling apples – and that would properly hold down the pay of those bankers still lucky enough to have a job.

The sudden rebound in demand for bankers is a symptom of overall market conditions right now. The U.S. stock market is way up from its lows, there are three Chinese initial public offerings (IPOs) due to come to market this week (one of them for a company with no earnings), the volume of home mortgage refinancing has been running at record levels, the FHA index of home prices has dropped only 0.3% this year and the volume of new corporate debt issuance is also high. Commodity prices are well off their lows, and oil prices are again close to $70 a barrel, which would have been considered an excessively high level only three years ago. That’s not a picture of a financial market – or a global economy – in deep recession.

Far from it.

To some extent, this is good news. A revival of the financial system and its ability to finance businesses and home purchases is exactly what the huge monetary and fiscal stimulus was meant to produce. A modest revival in world trade, as inventories cease being wound down and Chinese production ramps up again, is also a necessary precondition for economic recovery.

As the banking bonus news suggests, however, much of the activity is coming in some pretty funny places, where the excesses of the past decade were concentrated and where you wouldn’t expect to see such a quick revival.

That gives us a clear indication of just what the problem is. Because bankruptcies weren’t allowed to happen back in September and October – as they would have in a free market – there are more institutions in the market than there should be, Citigroup and Merrill Lynch most notable among them.

Moreover, in a true free market, the entire credit-default-swap (CDS) business – a product that caused $180 billion of losses to the financial system through American International Group Inc. (NYSE: AIG) – would be nothing but a smoking ruin. But in the market we are living in, those $180 billion worth of losses have been transferred to the tab of the taxpayers of America.

With Citigroup and Merrill Lynch bankers mooching around on street corners, financial sector salaries would be forced down to a more reasonable level.  As it is, the few unemployed unfortunates who worked at Lehman Brothers are not enough to depress the market. Likewise, credit default swaps have caused huge pain to the unfortunate employees of Abitibi-Bowater Inc. (NYSE: ABH), General Growth Properties (OTC: GGWPQ), and Six Flags Inc. (OTC: SIXFQ), each of which went bust partly because their creditors were playing in the CDS market and had no incentive to find an alternative to bankruptcy. Had CDS caused the pain they should have to financiers, the product would no longer exist, to the considerable benefit of the rest of us.

Inevitably, we are going to have to pay the price for all the bailouts. The financial sector will eventually shrink to its proper size, as will its members’ earnings. CDS will eventually be sharply restricted, to prevent their holders from forcing random companies into Chapter 11. Interest rates will have to rise, to accommodate the huge debt-funding needs the government has incurred. Money will have to be kept tight, to pay for the indulgences that Fed Chairman Ben S. Bernanke granted during the bubble, as well as for the even greater-indulgences of the bust.

Which is probably why you don’t want to hold U.S. stocks right now.

[Click here to check out a related Money Morning story on the salary increases some banks are offering in order to retain key employees.]

Source: Who’s Really to Blame for the Crooked Financial System

Traders have grown increasingly fearful in recent weeks that the powerful surge in the three major U.S. stock indices – one of the strongest in history – may not have been justified because of an ongoing economic recovery that’s not as strong as originally believed.

“There’s no question in my mind that the economy is improving,” Phil Orlando, chief equity market strategist at Federated Investors, told The Associated Press on Friday. “But investors are betting on some sideways consolidation rather than a continuation of a sharp spike in share prices.”

All the major indexes closed the week down for the first time since the week of May 11. The Dow Jones Industrial Average lost 3%, theStandard & Poor’s 500 Index fell 2.6%, and the Nasdaq Composite Index 1.7%.

Stocks returned to the whipsaw trading pattern investors had grown wearily accustomed to in the months before the rally got under way.

Stocks fell early in the week as a handful of weak economic reports – including news that industrial production had fallen for the seventh straight month – contradicted other reports that seemed to depict a gradual improvement in the American economy.

But some modestly upbeat economic reports sent U.S. share prices up a bit on Thursday; one report demonstrated that the overall number of people drawing unemployment benefits fell last week for the first time since the start of January.

But it wasn’t until stocks finished the day mixed on Friday – with financial, retail and tech shares gaining, while energy and utility shares dropped – that the three major indices finished with their first weekly loss since the start of May.

Last week was a loss. And the week before the three key indices each rose less than 1%.

“It’s not going to be a one-way ride,” Keith Walter, portfolio manager of Artio Global Equity Fund, told reporters.

Since periods of powerful market overperformance are usually followed by a period of sharp underperformance, institutional players have been looking for a down week.  Usually, a 40% surge like the one seen in the S&P 500 index takes years to develop, not months.

But here’s the question: Does last week’s market pullback have more to go, or can it still move higher after two consecutive weeks of sideways trading?
The conventional wisdom is calling for a stretch of choppy trading that will last through the summer, a period during which there’s low volume, until July when Corporate America begins announcing second-quarter earnings.

Market Matters

As the Dow finished the week in the “red,” it also turns out that its push into positive territory for the year was relatively short-lived.  Just one trading session beyond the index’s surge into the “black,” traders surveyed the economic landscape, evaluated the new regulatory environment, reconsidered the ballooning deficit (not even including health care) and chose to book some profits.  While the other major indexes remain profitable year-to-date, many investors believe the markets stand at a crossroad as they attempt to determine whether the recent move has been:

• A mere blip on the radar screen, amid a much-longer bear market.
• A much-too-fast run-up for a rebounding economy that that still faces a plethora of challenges.
• The start of a new bull market that simply is taking a week off to digest all the “euphoric” news.

The analysts, TV pundits, and bloggers maintain no shortages of views about the markets’ future direction.  Only time will tell.

As expected, major financial institutions rushed to pay back $68 billion in Troubled Assets Relief Program (TARP) money and get out from under the strong arm of the government.

JPMorgan Chase & Co. (NYSE:JPM), Goldman Sachs Group Inc. (NYSE: GS), and Morgan Stanley(NYSE: MS) highlighted the list, while Citigroup Inc. (NYSE: C), Wells Fargo & Co. (NYSE: WFC), and Bank of America Corp. (NYSE: BAC)are among those still seeking Uncle Sam’ approval for every action.
Meanwhile, Standard & Poor’s downgraded 18 related institutions, including a few that paid back the bailout money - BB&T Corp. (NYSE:BBT) and U.S. Bancorp (NYSE: USB) – and warned about the industry’s future

The Obama administration revealed plans for the most significant financial regulatory overhaul since the Great Depression.  The proposal expands the oversight role of the U.S. Federal Reserve, and includes higher capital and liquidity requirements, stricter reviews over hedge funds and certain derivative products, and the creation of a new consumer protection agency.  U.S. Treasury Secretary Geithner detailed the plan before the Senate and was met with mixed (but predictable) reactions…Republicans thought it was excessive, while Dems felt it didn’t go far enough.

If both sides dislike it equally, perhaps it’s a good plan?

Volatility returns to the markets as the VIX (Chicago Board Option Exchange Volatility Index) surged past the critical 30 mark early in the week, a sign generally associated with stock-market pessimism.  Bonds continued their ongoing roller-coaster ride as some fixed-income investors remained concerned about the global demand for U.S. debt, while others turned to the asset class as a flight-to-quality from riskier securities.

The worries continued as both China and Japan reportedly cut back their treasury holdings in April, a worrisome development considering the upcoming Treasury auctions will add a record $104 billion of government securities to the Street.

Oil hovered around the $70 a barrel level and gas prices increased for 52 straight days as consumers began to feel the pinch just in time for the summer holiday travel season.  Options expiration from “quadruple-witching Friday” brought additional volatility as each major equity index gave back some ground for the week on less-than-favorable reports from the likes of Best Buy Co. (NYSE: BBY) and FedEx Corp. (NYSE:FDX).

Market/ Index	Year Close (2008)	Qtr Close (03/31/09)	Previous Week (06/12/09)	Current Week (06/19/09)	YTD Change
Dow Jones Industrial	8,776.39	7,608.92	8,799.26	8,539.73	-2.70%
NASDAQ	1,577.03	1,528.59	1,858.80	1,827.47	+15.88%
S&P 500	903.25	797.87	946.21	921.23	+1.99%
Russell 2000	499.45	422.75	526.84	512.72	+2.66%
Global Dow	1526.21	1347.38	1,694.76	1,633.70	+7.04%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	2.24%	2.68%	3.79%	3.79%	+155 bps

Economically Speaking

While U.S. Federal Reserve Chairman Ben S. Bernanke will be gaining enhanced powers under the federal financial system makeover, he must be wondering whether he will be around to experience them.  Despite the unprecedented challenges he has faced over the past few years, U.S. President Barack Obama has been tightlipped about whether he will reappoint Bernanke for another term when the central bank chairman’s current stint expires in January.

“Ben Bernanke has handled his position extraordinarily well under extraordinary circumstances…but I’m not going to make news on that right now,” President Obama said.

Some Fed watchers believe that President Obama has Lawrence Summers, the former U.S. Treasury secretary and present National Economic Council chairman, in mind for the position.

On the economic front, inflation data highlighted the week’s releases as both producer price index (PPI) and the consumer price index (CPI) for May were reported as below expectations.  While certain naysayers pressed forward on the scary “deflation” argument, other naysayers point to the rapid rise in energy prices as proof that the dreaded “I” word is merely lurking on the horizon.

For now, however, inflation is not considered “Public Enemy No. 1″ and economists will focus on housing, labor, and manufacturing for more signs of economic stability.

Turning to housing, new construction climbed by its largest amount in three months and even building permits jumped in May as prospects for the future look more promising.  Bear in mind, however, homebuilding activity still remains more than 45% below last year’s levels.

Industrial production fell more than 1% in May as automakers Chrysler Group LLC and General Motors Corp. (OTC: GMGMQ) continued shutting down plants and limiting production as they initiated their restructuring plans.  While initial jobless claims actually increased slightly in its most recent weekly release, total insurance claims actually fell for the first time in five months.  Still, the labor market remains the primary concern as the economy begins to show some signs of improvement.

On that note, the leading economic indicators (LEI), an index thought to forecast economic activity for the next three to six months, experienced its best showing since March 2004.

Weekly Economic Calendar

Source:  Market Stumble Heightens Worries That Economic Rebound May Not Be That Strong