Monday Hangover

The top story on BBG News this morning is also on A1 of the WSJ, Bernanke will speak more openly and more often after the Fed was criticized for sending confusing signals. The Fed denies it was influenced by criticism, but there has been an awful lot of contradictory chatter lately, especially from Fed newbies.

 

This morning, the SEC is investigating to see if there are links between advising companies at one arm of several investment banks while trading in their equity at another arm. A private sector paper found more instances of such trading than one would expect, with some big profits in the trades.

 

Separately, the WSJ says the SEC is checking the books at a Wall Street bulge bracket firm’s prop desk to see if the firm was front-running customer orders.

 

Connecticut’s AG Richard Blumenthal has joined New York’s Andrew Cuomo in investigating whether investment banks disclosed exception loans—loans that did not meet all the criteria for lending at a mortgage company or bank but were made anyway—to investors buying structured mortgage product. Cuomo made headlines by subpoenaing Fannie and Freddie as part of his investigation. Blumenthal is questioning bond insurers.

 

Bear Stearn’s David Malpasse takes the case for rate hikes to the WSJ op-ed page, saying a stronger dollar is the key to recovery. Most economists would rather have rate cuts.

 

On the front page of the money and investing section, the WSJ has it both ways today, with an article speculating that the B of A purchase of Countrywide may mark the bottom of the market’s turmoil, while across the page another article warns that the stock market often drops in recessions.

 

There was plenty more recession talk over the weekend. The highlights from the WSJ and NYT:

 

Page 1 in Saturday’s WSJ:  “Economy Hit As Consumers Tighten Belts.” Consumers have carried the economy for years, but now there are signs of strain.

 

1. High-end spending is slowing. Tiffany guided earnings lower on Friday. Amex warned of rising delinquency rates and slower spending among cardholders.
2. Retailers including Kohl’s reported slower spending in December.
3. Capital One warned earnings will fall short of expectations on reduced credit card use.
4. AT&T warned of rising delinquencies in telephone billing.
5. Car sales fell 3% from last year in December.
6. The Fed says credit instruments, including mortgages, credit cards and auto loans, are 18.7% of assets, the highest ever.
7. Not in the story, but in the paper and related: Starbucks, home of the $5 cup of coffee, is shaking up management to counter weaker sales. CIT warned it will take a Q4 loss on housing-related losses.

 

Consumer spending accounts for 70% of the economy. The only reason so many economists have not yet forecast a recession in 2008, including those at the Fed, is the strength of consumer spending in late 2007, especially in November when retail sales and consumption rose more than 1%. If fourth quarter sales turn out to be weaker, look for the recession forecast to gain a lot more support.

 

Citi is expected to raise new capital with investments from China and the Middle East. The market’s resistance to securitization means more assets will have to be financed on bank balance sheets, which means the direct-investment theme will continue to play for months to come. Citi is expected to follow Merrill’s lead and post a big Q4 loss.

 

In Sunday’s NYT, an increasing number of economists think it’s too late for economic stimulus. The problem in the bond market is “huge and complex, the American economy has in recent years been aided by a global web of finance so elaborate that no one seems capable of fully comprehending it. That makes it all but impossible to predict how much the economy can be expected to fall before it stabilizes.”

 

Also in the Sunday Times—here’s a shock—this year’s farm bill is a “creature from the Black Lagoon monstrosity of pork and corporate welfare. “

 

No data today. PPI and retail sales tomorrow.