Sell in May and go away?

Stocks have fallen in the summer in bad years for the market. But going away in May wasn't smart in up years for stocks.

S&P 500 performance May-October Full year 2000 -1.6% -10.1% 2001 -15.2% -13.0% 2002 -17.8% -23.8% 2003 14.6% 26.1% 2004 2.1% 9.1% 2005 4.3% 3.5% 2006 5.1% 13.6% 2007 4.5% 3.5% 2008 -30.1% -38.5% 2009* 5.3% 1.8%

Source:Standard & Poor's * 2009 figures through May 29

18 charged over alleged bank fraud ring

Manhattan's district attorney has announced the indictment of 18 people including former employees of JPMorgan Chase Bank, TD Bank and HSBC over an alleged identity theft and check fraud scheme believed to have affected hundreds of victims. 

The 227-count indictment contests that between October 1st 2007 and February 10th 2009, the defendants conspired to steal bank account and personal information, which they then used to manufacture thousands of counterfeit checks. 

Jasper Grayson and James Malloy are said to have acquired the data necessary to forge the checks by recruiting a number of bank employees with access to account records. 

Once they had obtained the details, Mr Grayson and Mr Malloy are alleged to have created the checks using specialist computer software, scanners, printers, magnetic ink and company logos found on the internet. 

Conspirators are also said to have enlisted "soldiers" to cash and deposit the checks. The individuals recruiting these "soldiers" obtained their personal details so the counterfeit checks could be made out to them. 

District attorney Robert Morgenthau said victims of the alleged conspiracy included private individuals, companies, religious institutions and both city and state agencies. 

Mr Morgenthau has served has Manhattan's district attorney since 1975.

Economy shrinks at 5.7% rate

First-quarter GDP contraction is revised to narrower annual rate, but decline remains the second largest in 27 years.

NEW YORK (CNNMoney.com) -- The U.S. economy shrank at an annual pace of 5.7% in the first quarter, a less severe drop than initially reported but still the second-biggest quarterly decline in 27 years, the government said Friday.

Economists expect a drop in gross domestic product this quarter as well, although not as sharp as in the first three months of the year.

Last month, the government initially reported that gross domestic product -- the broadest measure of the nation's economic activity -- fell at an annual rate of 6.1%.

The revision fell short of economists' expectations of a 5.5% drop, according to a consensus estimate from Briefing.com.

The first quarter of 2009 marked the third quarter in a row that the economy has contracted. It was the second worst drop in the measure since the early 1980s -- behind only the fourth quarter of 2008, when GDP plunged at an annual pace of 6.3%.

Inventories weigh in: Much of the revision in first-quarter GDP was attributed to a lower reading in business inventories, as sales of domestic products were unchanged at a 3.4% annual rate of decline.

Inventories fell by $91.4 billion, compared to an initial reading of $103.7 billion. As a result, the subtraction to the annual rate of GDP growth was 2.3 percentage points, rather than 2.8.

Businesses cut their inventory levels in the face of falling demand. A cutback in inventory levels means that when the economy does start to recover, businesses will have to start producing goods again to meet demand.

So, since inventories didn't decline as much, what may have been a positive in the first quarter may not be in the second, said Brian Bethune, chief financial economist at IHS Global Insight.

"The basic problem is there is very weak demand for goods and services, not only in the U.S., but around the world," said Bethune. "If you combine that with excess inventories, then you have a major problem."

In the first quarter, spending by individuals was revised lower to a rate of 1.5% growth, down from the initially reported 2.2% rate. Residential investment plunged by 38.7% in the quarter.

The recession has cut into demand for goods and services. The unemployment rate, which reached a 25-year high of 8.9% in April, has caused anxious consumers to cut back.

Going forward: Ian Shepherdson, chief U.S. economist at High Frequency Economics, said in a research letter does not think that the cut back in inventories is enough to support a rebound in the second half of this year. But, he wrote, "the speed of the drop will slow."

"We expect Q2 GDP of about minus 2%," Stephenson said.

Bethune also forecast that second-quarter GDP would remain under pressure.

"If you look at key leading indicators on spending -- auto sales are very weak, chain store sales are weak -- so consumer spending is not going to really do much," he said. Furthermore, "business investment is going to contract because corporate profits continue to be under pressure."

While corporate profits increased by $42.6 billion in the first quarter, those profits were isolated to the financial sector, according to the report. Profits of financial companies increased $116.1 billion in the quarter, while profits in non financial companies decreased by $64.2 billion.

Bethune said that he expects to see GDP nearly break even in the third quarter and finally turn to a modest positive in the final quarter of the year.

The government's final revision of first-quarter GDP is due June 25.  

U.S. consumer mood highest in 8 months: survey

The gradual healing in consumer confidence, which hit a 28-year low in November, has been seen as a sign of an economic rebound from the worst downturn since the Great Depression.

The Reuters/University of Michigan Surveys of Consumers said its final May reading on consumer sentiments was 68.7, higher than an early May figure of 67.9 and a final April reading of 65.1. This was slightly above economists' median expectation of a reading of 68.0, according to a Reuters poll.

more at

http://www.reuters.com/article/newsOne/idUSTRE54S3F620090529

Roubini says U.S. economy may dip again next year

Nouriel Roubini, the famously glum economist who predicted the financial crisis, said that while the recession in the United States may well be over at the end of the year, another dip was still possible next year.

"I still expect that economic growth in the U.S. is going to be negative through Q4, and that we'll see positive growth in Q1," Roubini told Reuters in an interview on the sidelines of the Seoul Digital Forum.

"The U.S. recession is going to be U-shaped, lasting roughly 24 months," he added. "Compared to the current consensus that says we are practically at the end of the recession ... my view is: no, it's going to last another six to nine months before it's over."

more at 

http://www.reuters.com/article/wtUSInvestingNews/idUSTRE54R1U120090528

Compensation overhaul might be counterproductive

Terms of the government's Troubled Asset Relief Program are forcing big banks to rethink the way leading performers are compensated. "It's kind of ironic in a way, because over the last 10 years, everybody has been pushing for pay for performance," said Michael Melbinger of Chicago's Winston & Strawn. "Now, with TARP, it is 180 degrees the other way." Experts said the revamp of compensation structures might prove to be counterproductive in the long run.

more at

http://www.reuters.com/article/ousiv/idUSTRE54R6OO20090528

M-payment users to increase by over 70%

The number of mobile payment users worldwide is set to hit 73.4 million in 2009 - an increase of 70.4 percent from 2008, according to new research from Gartner. 

In its Dataquest Insight: Mobile Payment, 2007-2012 report, the analyst said there will be around 190 million m-payment users by 2012 - over three per cent of global mobile customers.

Gartner research director Sandy Shen said the "most profound impact" of mobile banking and payment services will be in developing markets, where they will provide a largely non-banking population with cost-effective access to modern financial services. 

She added that such technology can "greatly improve standards of living" in areas where most people do not currently have a bank account or payment card. 

Nevertheless, Ms Shen said the wider adoption of mobile payments still faces challenges, particularly over security concerns, the adequacy of its "ecosystem" and its status as a grey area when it comes to banking regulation. 

Earlier this week, a study by TowerGroup said the desire to keep a close eye on personal finances and the increasing sophistication of smartphone technology would see mobile banking become a "mainstream" service in 2009. 

Morningstar initiates target-date fund reports

Morningstar Inc. said Wednesday it is launching ratings and detailed reports on target-date funds. The style of mutual funds have been criticized for losing significant value as the stock market deteriorated last year even though they were sold as safe investments for retirement.

The average 2010 target-date fund, for example, lost 25 percent last year, said John Rekenthaler, vice president of research for Morningstar.

The funds are designed to align investment risk with the year an investor plans to retire. As the investor approaches retirement, the funds are designed to shift from stocks to less risky bonds or other investments.

The top performing 2010 fund lost just 3.6 percent last year, while the worst was down 41 percent, he said, illustrating the wide variance in investment strategies used.

"Surprise about these variations in performance reveals the lack of knowledge about this new, fast-growing category of mutual funds," he said.

Rekenthaler said the new research and reports will help inform investors about the funds, which have become the default investment in many employer offered 401(k) plans.

Reports on 20 fund families will begin in the third quarter of this year, he said.

The reports will evaluate the fund managers, the parent company offering the fund, performance, the fund's holdings and its price.

The reviews will be updated annually.

Morningstar, an independent investment research company, announced the new reports at its annual investor conference under way in Chicago, where the company is based.

US Jobless Claims Fall By 13,000

The number of freshly laid-off workers filing new claims for state unemployment benefits fell more than expected last week even as the total number of people collecting benefits set a new record for the 17th time in as many weeks.

The tally of continuing claims, those drawn by workers collecting benefits for more than one week in the week ended May 16, rose by 110,000 to a record 6,788,000. It was the 17th consecutive week in which that figure set a new record. Continued growth in the number signals the unemployment rate, which grew to 8.9% in April, will climb even higher in May.

Initial claims for jobless benefits dropped by 13,000 to a seasonally adjusted 623,000 in the week ended May 23, the Labor Department said in its weekly report Thursday. The Department revised the previous week's figure upward by 5,000 to 636,000. 

OPEC leaves output unchanged

OPEC agreed to keep its production levels unchanged on Thursday, betting that higher oil demand as the global economy recovers would push prices towards the cartel’s target of $75-$80 a barrel by the end of the year.

Opec, which produces about 40 per cent of the world’s oil, has announced three output cuts since September, totalling 4.2m b/d – about 5 per cent of global oil demand – in an effort to shore up oil prices.

While gold consolidated around the $950 an ounce level, caution dominated sentiment in commodity markets amid concerns about the outlook for the dollar and pressures in the Treasury bond market due to soaring levels of government debt.

Nymex July West Texas Intermediate traded just 2 cents higher at $63.47 a barrel afar reaching $63.82 during the previous session, a fresh seven-month high. ICE July Brent dipped 6 cents at $62.44 a barrel.

Gold traded at $9487.70 a troy ounce, moving between a low of $943.55 and a high of $951.55 after ending trading in New York in the previous session at $948.

Investor inflows into gold exchange traded funds have stalled with holdings in the SPDR Gold Trust, the largest physically backed fund unchanged at 1,118.76 tonnes since May 22.

John Reade, precious metals analyst at UBS said investors in the gold market were concerned about increasing levels of government debt, the threat of currency debasement and rising inflationary pressures.

“We suspect that the recent moves in US fixed income markets (the benchmark US 10-year Treasury yield rose 19 basis points to 3.74 per cent on Wednesday) have strengthened the case for owning gold and that any sign of a push higher in TIPS spreads towards and beyond the 2.71 per cent high seen over the past five years could trigger considerably more interest in gold as a hedge against inflation,” said Mr Reade.

FDIC says number of problem banks to increase

About a fifth of the country's banks are in trouble, and more "problem banks" are likely, the Federal Deposit Insurance Corp. said. The 8,200 FDIC-insured banks saw their collective income plunge more than 60% year on year. "The first-quarter results are telling us that the banking industry still faces tremendous challenges and that, going forward, asset quality remains a major concern," FDIC Chairwoman Sheila Bair said. "Bank failures continued to mount, and they will continue to do so."

more at 

http://www.ft.com/cms/s/0/285dac88-4b01-11de-87c2-00144feabdc0.html?nclick_check=1

SEC secures assets freezes over suspected forex fraud

The Securities and Exchange Commission (SEC) has secured an emergency court order freezing the assets of a Texas A&M finance professor, a Houston-based lawyer and certified public account and two firms over a suspected foreign exchange investment fraud. 

In a statement, the regulator said Robert D Watson and Daniel J Petroski have been charged with defrauding investors by using forged bank records to give the impression that they were making "spectacular returns" on forex trading. 

The pair are alleged to have raised more than $19 million since July 2006 from clients who were told they would earn profits through foreign currency trading program called Alpha One, which was purportedly owned by their firm, PrivateFX Global One. 

Investors were also told the pair would use a so-called "deal clearing company" owned and controlled by Mr Watson called 36 Holdings. 

The SEC's complaint contests that Mr Watson and Petroski claimed to have made annual returns of over 23 per cent and had never had a losing month since the inception of Alpha One. 

The claims were not supported by valid financial records, the regulator added. 

Pequot Folds Under Weight Of Probe

Pequot Capital, once the world's biggest hedge fund manager, is to liquidate its main funds because a US government investigation into suspected insider trading has "cast a cloud" over the firm.

Art Samberg knows something about that. The 68-year-old hedge fund manager is shutting down Pequot Capital amid a lingering investigation into insider trading by the Securities and Exchange Commission that has "cast a cloud" over the operation.

In a letter to investors late Wednesday, Samberg, who started Pequot in 1986, said the government continues to investigate his trading for the firm in 2001, and the probe had become an increasing "personal distraction."

"With the situation increasingly untenable for the firm and for me, I have concluded that Pequot can no longer stay in business as an investment advisor," he said in the letter.

Jonathan Gasthalter, a spokesman for Pequot, would not comment beyond the letter.

Pequot has been the subject of multiple insider-trading probes in the last five years. Late last year, the government reopened a case it closed in 2006 that focused on a former Microsoft employee, David Zilkha, who joined Pequot in April 2001 and left in November of that year.

The SEC and the U.S. Justice Department investigated communications between Zilkha and Samberg during the time Pequot hired him, and around the time Pequot was trading in Microsoft shares, netting profits of more than $2 million. The case was closed in 2006 after investigators found “insufficient evidence."

But in December, the government reopened the probe because of information that came out of Zilkha's divorce proceedings in Connecticut. The former Microsoftie turned Pequot employee was paid $2.1 million by Pequot, a divorce filing revealed.

Samberg told a Senate panel investigating the matter that the payment was to settle a civil claim related to Zilkha's employment and termination.

Before that, Pequot was mired in another insider-trading probe, this time involving Samberg's friend John Mack, a longtime Morgan Stanley executive who is now CEO of the investment bank.

The SEC had investigated allegations that in the summer of 2001, Mack, then an executive at Credit Suisse, had informed Pequot about a pending deal between General Electric and Heller Financial. The probe was abruptly halted in 2005 and the investigator, SEC staff lawyer Gary Aguirre, was fired. Aguirre contended that he was dismissed for pursuing the powerful Wall Street figures.

A Senate probe and internal SEC investigation later sided with Aguirre's version of events and faulted the SEC.

Samberg said in his letter Wednesday he would liquidate his core fund and return money to investors by the end of June. Pequot is much-diminished from its heyday, as investors have shied away from the firm, in part due to the insider-trading charges. Once as big as $15 billion, Pequot currently has about $3 billion of assets under management.

Other funds will be separated and run by current Pequot executives, including the Matawin fund, run by Mike Corasaniti, and a special opportunities fund run by Rob Webster and Paul Mellinger.

Pequot gave no indication as to whether a formal case is close to being filed. "This has been an extremely difficult decision for me," Samberg said in the letter.

CME rival ELX set to launch, but bad blood could mar debut

(Crain’s) — CME Group Inc. rival ELX Futures L.P. got the regulatory green light to open an electronic exchange offering futures on U.S. Treasuries.

On board for the planned June launch will be ELX’s founders — including BCG Partners Inc., Citadel Investment Group, Citigroup Inc., Deutsche Bank A.G., Bank of America-Merrill Lynch, Barclays PLC, Credit Suisse Group, Getco, J. P. Morgan Chase & Co., Peak6, and Royal Bank of Scotland PLC — as well as a number of high-volume traders that ELX has signed on, executives say.

“We are confident that ELX Futures will be a strong and needed competitive alternative in the mainstream futures exchange marketplace that will benefit all market participants,” CEO Neal Wolkoff said in a statement Wednesday announcing approval by the Commodity Futures Trading Commission.

But bad blood between a Chicago software executive and one of ELX’s New York-based founders may keep some traders from accessing the new market.

Harris Brumfield, a former Treasury futures floor trader at the CME-owned Chicago Board of Trade, sued BCG Co-CEO Howard Lutnick several years ago over alleged patent infringement. Mr. Brumfield, who runs software firm Trading Technologies International Inc., claimed that Mr. Lutnick’s firm, known at the time as eSpeed Inc., illegally copied Mr. Brumfield’s software. The courts sided with Mr. Lutnick.

Now, Mr. Lutnick’s firm is the technology provider to ELX. And Mr. Brumfield — whose Web site claims that half of the volume at the world’s five biggest exchanges goes through Trading Technologies’ trading platform — has refused to connect to the fledgling exchange.

A Trading Technologies saleswoman in March acknowledged that Mr. Brumfield’s past run-in with Mr. Lutnick was hampering talks. This month she declined to comment. Mr. Wolkoff likewise declined to comment on the relationship.

Other ELX officials say that Trading Technologies doesn’t account for as much trading as it claims and that ELX’s start won’t be hampered by its refusal to sign on because other software providers are writing to the exchange.

Software dustups aside, it’s clear that ELX is up against great odds. At least three prior startups have tried and failed to wrest marketshare from the established Treasury futures market at the Chicago Board of Trade.

But the recent success dealers had in moving liquidity in a key part of the mortgage business, known as “to be announced bonds,” from a platform run by broker-dealer ICAP PLC to one controlled by the dealers themselves is being touted as a potential model for the new exchange.

ELX is expected to announce pricing for the new market in coming weeks.

Banks lobby to buy own troubled assets under PPIP

Some banks want permission from the Federal Deposit Insurance Corp. to use government money to buy their own troubled assets. The request comes under the Obama administration's Public-Private Investment Program, which is expected to start with $100 billion in taxpayer-funded capital this summer.

more at

http://online.wsj.com/article/SB124338836675757049.html

Consumer Confidence Up Sharply

U.S. consumer confidence improved sharply in May, especially in expectations for the economy six months from now, a report released Tuesday said. The report boosted stocks and sent the Dow Jones Industrial Average surging more than 200 points.

The Conference Board, a private research group, said its index of consumer confidence for May jumped to 54.9, compared with 40.8 in April, which was originally reported as 39.2. The current month's reading was well above economists' expectations of 43.0, according to a survey conducted by Dow Jones Newswires.

The index is now at its highest since September 2008, the board said.

The present situation index, a gauge of consumers' assessment of current economic conditions, edged up to 28.9 from 25.5 in April.

Consumer expectations for economic activity over the next six months jumped to 72.3 from 51.0 in the prior month.

Treasury adopts banks' recommendations in derivatives regulation

The Treasury's proposal to regulate the over-the-counter derivatives market includes suggestions from Goldman Sachs, Credit Suisse, JPMorgan Chase and Barclays. In February, the banks told the Treasury that the Federal Reserve should expand regulatory practices to hedge funds and corporations, which do not face minimum capital and margin levels. 

more at

http://www.bloomberg.com/apps/news?pid=20601109&sid=aMMeY6OodQW4&refer=exclusive

What Went Wrong When Bear Stearns Fell?

It took 72 hours for Bear Stearns to crumble. In one day, Bear Stearns went from $18 billion in cash on hand to $3 billion, as investors panicked. Reporter Kate Kelly from the Wall Street Journal wrote about the final days of the investment bank's collapse in her book Street Fighters  and talks with host Kai Ryssdal about what happened.

http://marketplace.publicradio.org/display/web/2009/05/18/pm_streetfighters_q/

Web Portal to Streamline Access for Investment Managers.

DTCC is launching MAS Portal, a new web-based interface to its Managed Accounts Service (MAS) that will enable immediate connectivity for investment managers who oversee managed accounts programs.

"This is a breakthrough solution that gives investment managers a secure, automated portal from which they can directly access MAS to exchange account information with their sponsor partners and begin to benefit from the efficiencies inherent in the service," Ann Bergin, DTCC Wealth Management Services managing director and general manager, said in a release.

Supported by DTCC's global infrastructure, the MAS platform streamlines communications throughout the lifecycle of a managed account and links, through its one-to-many architecture -- an unlimited number of business partners on either side of a transaction.

It allows users to handle higher account volumes at lower cost; invest customers' funds quickly; decrease manual processing; and lower operational risk, DTCC added.

DTCC plans to launch MAS Portal in the third quarter of 2009 and has selected Peridrome Corporation's DashWM solution suite to power the new service.

Stuart Feld, managing director, UBS Wealth Management, added: "DTCC's goal all along has been to make the Managed Accounts Service all inclusive. Their user interface is the last piece of the puzzle, as it will benefit investment managers who don't have large IT resources to build a direct link and eliminate reliance on myriad sponsor-centric proprietary applications to process the operational portion of their business."

Using a digital certificate, investment managers will connect to MAS Portal through DTCC WebDirect, an interface that gives participants secure, direct access over the Internet to services provided by DTCC's subsidiaries.

Through MAS Portal, users will have immediate access to an open, industry-wide communications infrastructure that will not only support sponsors and managers, but service providers to the industry, as well. In addition to sending, receiving and managing messages, users will be able to download reports and data extracts through the portal.

American Airlines' Frequent-Flier Upgrade

AA's looser frequent-flier program makes it easier for customers to redeem miles and could set a new standard for other carriers' reward offerings

For many road warriors, the frequent-flier programs operated by airlines were the ultimate "wallet on a string" trick: Travelers found it easy to accumulate the miles but impossible to redeem them. And even when they could, they found that even the simplest free trip required "spending" double or triple the miles they anticipated.

But American Airlines' (AMR) recent decision to allow members of its AAdvantage loyalty program to redeem their miles for one-way tickets—and for just half the miles of a round-trip flight—may have marked a turning point in how the major carriers treat their best customers. American's move shows the extent to which airlines now realize that these loyalty programs have become more than just a cheap-and-easy way to reward their best customers, but are now arguably their biggest profit centers—and may be critical to their survival. And after years of milking these programs, airlines may start taking more steps to ensure that travelers don't become jaded and drop out.

SETTING A NEW STANDARD
"American Airlines has changed the dynamics of reward offering in the United States," says Jay Sorensen, president of The IdeaWorks Co., a Shorewood (Wisc.)-based airline industry consultancy. "The other major carriers will have no choice but to match this."

Industry experts say the move by American, which boasts 62 million loyalty members, will reverberate through the airline industry for some time to come. While other carriers may have no choice but to match American's new offering, how quickly they can do so isn't clear. Rob Friedman, president of American's AAdvantage marketing programs division, says it took slightly more than a year to reprogram its computers to handle one-way redemptions, and presumably should take rivals the same. "This gives us a tremendous ability to leapfrog our competitors," says Friedman, who called it "one of the most significant enhancements we've made this decade."

What all this means for travelers is that it could become easier—and cheaper—in coming months and years to use the collective 20 trillion miles they've banked with airlines. And the changes that Plano (Tex.)-based American announced in mid-May could be just the beginning. Under terms of the new program, American is allowing members of its AAdvantage program to book a one-way trip for just 12,500 points, half the 25,000 points required for a round-trip ticket, which was the minimum redemption before the changes.

ONE-WAY TICKETING
That's a good deal if you're a parent driving your kid back to college, and will leave him or her your car before flying back. Or if you want to put together a trip with three legs—say, visiting one relative in Florida, then another in Texas, before flying back home. Or even to book a round trip where one of the legs occurs during a "peak" period when many flights are normally full (to get a guaranteed seat during peak periods, you'd need to use 25,000 points to guarantee yourself a seat, using an AAnyTime award) and the other leg is during an "off-peak" period (when 12,500 points is enough to get you a MileSAAver seat).

Under the old system, you'd have to "purchase" a premium AAnyTime award for both legs, burning through 50,000 miles. Now you simply reserve two one-way trips, using a total of 37,500 points (25,000 going one way, and 12,500 coming back).

Some travel gurus think the change should also just make it easier to find free seats, period. That's because under the old system, a search of the availability of a free seat on a specific round trip could be rejected if one of the back-and-forth legs was unavailable. Indeed, Randy Petersen, founder of Colorado Springs-based Frequent Flier Services and editor of the WebFlyer Web site, says his research shows that 87% of rejected requests were because of the unavailability of one segment.

But by effectively unbundling each of the round-trip legs, frequent fliers can keep searching until they find a flight with available seats. American's Friedman notes that the airline redeemed 155 billion miles in 2008. With the changes, he expects even greater redemptions this year. "By offering this flexibility, we think customers will use their miles for more kinds of trips than before," he says.

USE 'EM OR PAY FOR 'EM
There could also be a financial benefit for airlines to run down that massive backlog of unused miles as well. New international accounting rules require foreign-based carriers to value those liabilities at higher levels that reflect the fair-market value of the miles, a switch that forced Australian carrier Qantas (QAN.AX) to reduce earnings by $29 million last year.

And if the U.S. standard-setters at the Financial Accounting Standards Board adopt that same practice—as experts expect around 2012 or so—then U.S. carriers could be forced in coming years to take large, one-time revaluation charges on their unused miles as well, notes Paul Munter, an audit partner with KPMG, the international accounting firm. "It appears momentum is moving in that direction," says Munter.

For the airline industry, which has long been accused by critics of making it harder and more expensive for customers to claim free seats, the move may mark a watershed moment. And that reflects how important frequent-flier programs have become to the industry, and the degree to which airlines want to keep their loyalty-program customers engaged—and loyal.

THIRD-PARTY SALES
Tim Winship, a former airline executive who developed frequent-travel programs for Singapore Airlines as well as Hilton Hotels, estimates that the three largest carriers—Delta (DAL), United (UAUA), and American—each now generate roughly $1 billion in annual revenues from the sale of frequent-flier miles to hotels, rental-car companies, and even utilities, which in turn offer the points as inducements to their customers. Petersen notes this revenue stream is almost pure profit for the carriers, since the marginal cost of transporting a free passenger is nothing more than a can of soda, bag of peanuts, and the incremental fuel costs (a little less than 3¢ a mile at current prices, or about $38 for a round trip between Chicago and New York, or less than a tenth of the $500 to $1,000 an airline will collect from selling the points a customer needs to exchange for a free seat).

"This is a very profitable business, maybe more profitable than the flying itself," says Winship, who now runs the FrequentFlier.com Web site.

But American's changes aren't good news for every member of its loyalty program. For some expert travelers, the new policies will end one of the quirks of the old system that enabled fliers to hit more than one destination on a single redemption. Specifically, American is no longer allowing "free stopovers" outside of the U.S., a trick that allowed savvy travelers to game the system by booking a free ticket from, say, New York to Madrid, but routing the trip through London and scheduling the connection from London to Madrid for a separate day. That was an expert play that allowed these travelers to spend a couple of days meeting with clients or even the Queen Mum before actually taking that connecting flight from London to Madrid. Under the old system, travelers could do that on a single redemption (and maybe book your return flight through Frankfurt, and spend a couple of days at Oktoberfest for good measure).

American now requires travelers to book two separate one-way tickets each way if they want to stop over for a day or two in London and Frankfurt. Travel experts say this loophole was exploited by a relatively small number of fliers. In the end, their sacrifice may be a small price to pay for the broader benefits to the rest of the traveling public.

Humor : 2 little pigs

The little pig with the portfolio of straw and the little pig with the portfolio of sticks were swallowed up, but the little pig with the portfolio of bricks withstood the dip in the market. Published in The New Yorker December 15, 1997

Rating Agency To Post Grades On Web

A subscriber-based agency whose ratings are to be accepted by the Federal Reserve for its program to boost the commercial mortgage bond market will post its ratings on existing bonds publicly.

Realpoint LLC is one of five rating agencies named by the Fed whose evaluation of older commercial mortgage-backed securities will count for eligibility in the Term Asset-Backed Securities Loan Facility, or TALF.

Unlike the other four rating agencies on the list -- Moody's Investors Service, Fitch Ratings, DBRS Inc. and Standard & Poor's -- Realpoint is not paid by the issuer of the bonds. Instead, its clients, mostly institutional investors, sign up for its service so the ratings and analysis are not available to anyone but its subscribers.

Now that the Fed has said that starting in July it will accept the super-senior or top-rated portions of existing commercial mortgage bonds in its TALF program, Realpoint will make its ratings on these older bonds available on its Web site.

Opposition to uptick rule might deter resurrection

While the Securities and Exchange Commission proposed resurrecting the uptick rule, traders, mutual funds and other market participants, including companies that blame short selling for their depressed share prices, expressed opposition to the move. "We know that the practice of short selling evokes strong opinions from both its supporters and detractors," SEC Chairwoman Mary Schapiro said. "I've made it a priority to evaluate the issue of short-selling regulation and ensure that any further policies in this area are the results of a deliberate and thoughtful process."

more at

http://www.bloomberg.com/apps/news?pid=20601208&sid=aPO.OOga5rN4&refer=finance

Record number of brokers leave Wall Street

So far this year, 11,600 people registered as brokers have abandoned the industry, according to the Financial Industry Regulatory Authority. The exodus comes as fees are declining and markets have slumped, although a recent rally might slow the pace. Experienced advisers continue to be in demand.

more at

http://online.wsj.com/article/SB124156648439789537.html

Economists predict W-shaped recovery

Many economists think the economic recovery will be "W shaped," meaning the economy might go up and down before resuming a course of growth. Most recoveries since the 1940s have been V shaped. This time, the Federal Reserve and other central banks have been injecting trillions of dollars into the global economy, meaning a sharp rise in inflation could fuel a bouncy ride ahead, observers said.

more at

http://www.newsweek.com/id/199164

Ezra Merkin relinquishes hedge funds to trustees

Hedge fund manager Ezra Merkin, who invested billions of dollars worth of his clients' money with disgraced Wall Street financier Bernard Madoff, has agreed to turn over control of his investment pools to court-appointed trustees.

The New York attorney general's office had requested that Mr Merkin relinquish control of the funds as part of its civil complaint against the money manager, the Associated Press (AP) reports.

It said the move, which could be approved by a court later this week, does not represent a settlement of the case.

New York attorney general Andrew Cuomo alleges that Mr Merkin funneled $2.4 million to Mr Madoff without his investors' knowledge and earned millions in management fees, despite simply passing clients' money on to the fund manager.

He is also accused of ignoring "glaring red flags" regarding Mr Madoff's business activities.

Mr Merkin denies the charges and maintains he had no knowledge of Mr Madoff's $65 billion Ponzi scheme until the broker's arrest in December.

His lawyer, Andrew Levander, told the AP that handing over control of the funds are part of his "continuing efforts to maximize the returns to investors".

Court approves distribution of $843m to harmed AIG investors

A US federal court has approved the distribution of over $843 million to investors harmed by a 2006 fraud case against insurance giant AIG.

The money will be distributed through a Fair Fund established by the Securities and Exchange Commission (SEC). Under the 2002 Sarbanes-Oxley Act, the regulator can use Fair Funds to distribute both illegally-obtained cash and civil settlements directly to the investors involved.

In a statement, the SEC said the AIG Fair Fund's court-appointed distributing agent estimates that checks will be sent to over 257,000 AIG shareholders over the coming months.

AIG was charged by the SEC with accounting fraud in February 2006. The regulator contested that between at least 2000 and 2005, the company materially falsified its financial statements and reported false and misleading information regarding its financial position.

The firm paid $800 million to settle the charges without admitting or denying any wrongdoing.

James Clarkson, acting director of the SEC's New York office, said: "The return of these funds to harmed investors is another example of our determined effort to protect investors from those who engage in corporate malfeasance."

Results of EU-wide stress tests will remain secret

The outcomes of stress tests on financial institutions in the European Union (EU) will be kept confidential, the Committee of European Banking Supervisors (CEBS) has said.

Under the EU-wide exercise, national supervisors will use common scenarios developed by CEBS to determine the resilience of Europe's banks in the event of further financial shocks.

CEBS said that unlike the US government's stress tests, the assessments are not designed to identify individual institutions that need to raise more capital, as this is the responsibility of national regulators.

Rather, the tests are intended to increase the level of aggregate information on the EU's financial system available to policymakers and to support the convergence of best practice across the 27-nation bloc.

The tests are expected to be completed by September, CEBS said.

In the US, the government's stress tests of 19 major lenders found that 10 banks - including Citigroup, Bank of America and Morgan Stanley - needed to raise an additional $75 billion to ensure they could withstand a severe economic slump.

TED spread normalizes, signaling availability of credit

The TED spread, the gap between the two-month London interbank offered rate and the two-month Treasury bill rate, dropped from more than 450 basis points in October to 48 basis points Thursday. The credit-distress barometer's long-term average is roughly 50 basis points. "Over history, it's been quite an interesting predictor of credit crunches. The fact that it's gone down is a positive indicator of credit availability," said James Holtzman, a financial adviser at Legend Financial.

more at

http://www.marketwatch.com/story//hallmark-of-credit-crunch-sinks-to-former-levels

Billions 'withdrawn from Madoff accounts before arrest'

Approximately $12 billion was withdrawn from accounts belonging to Bernard Madoff's investment firm prior to his arrest for running a $65 billion Ponzi scheme, according to reports.

Sources told the New York Times that around half the money was pulled out in the three months leading up to the disgraced broker's arrest in December 2008.

The newspaper said the figures will offer "a bit of hope" to investors burned by the scam, as under US law the trustee in charge of liquidating Bernard L Madoff Investment Securities can sue those who withdrew the cash.

Indeed, court-appointed trustee Irving Picard has already filed two lawsuits seeking the recovery of $6.1 billion estimated to have been withdrawn from Mr Madoff's firm over the past ten years.

One of those suits was filed against philanthropic organization the Picower Foundation, its two founders and a number of other defendants.

In his complaint, Mr Picard contests that Barbara and Jeffry Picower should have been aware they were profiting from fraud because of the "implausibly" high returns they received from Mr Madoff.

The couple's lawyer said they had not been aware of his wrongdoing and played no role in the fraud, Newsday reported.

Ex-Ernst & Young partner guilty of insider trading

A former partner with accounting firm Ernst & Young has been found guilty of insider dealing after he passed tip-offs on multi-billion dollar merger and acquisition deals to a friend.

James Gansman had been a lawyer with E&Y's transaction arm, which advises firms on HR issues linked to takeover deals, the Times reports.

Between May 2006 and July 2007, he passed privileged details about seven upcoming mergers to his friend Donna Murdoch, who traded shares on the back of the information to make a profit of approximately $40,000 (£26,164).

Ms Murdoch, who pleaded guilty to 15 counts of securities fraud in December, testified against Mr Gansman during his trial in New York. She will be sentenced in June.

The former consultant, who resigned from E&Y in October 2007, was convicted on six counts of securities fraud. He faces a maximum sentence of 20 years in prison and a fine of up to $5 million on each count.

Sentencing for Mr Gansman has been set for October 1st.

SEC, FINRA might coordinate efforts, study forecasts

TowerGroup is scheduled to release today a study that predicts how regulatory reform will shake out. The financial researcher expects the Financial Industry Regulatory Authority to be more actively involved in the review of registered investment advisers. FINRA could gain the responsibility of examining the advisers, while oversight would be handled by the Securities and Exchange Commission. The study is also expected to state that an overhaul of regulations could add as much as 20% to advisers' compliance costs. 

more at

http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20090515/REG/905159957

Changes to Fed's powers likely on horizon

The Federal Reserve is at a turning point. The financial crisis is expected to result in the Fed gaining the authority to supervise large, systemically important financial institutions. However, the Fed could lose its emergency-lending power or its regulatory authority over consumer-finance activities.

more at

http://online.wsj.com/article/SB124260036470728279.html

Energy market gets caught up in derivatives crackdown

Regulators are pushing for over-the-counter derivatives to trade through a clearinghouse so failed trades would not cause a domino effect. While commodities make up only 2% of the massive derivatives market, participants in the energy market said the crackdown could make trading much more complex. "In what regulators are attempting to accomplish here, energy is the dolphin getting caught in a tuna net," said Michael Cosgrove of GFI Group.

more at

http://online.wsj.com/article/SB124260335094228561.html

Trading in CBOE Volatility Options

CBOE Volatility Index® (VIX) Options

The CBOE Volatility Index (VIX) is a key benchmark of expected market volatility, as measured by options prices on the S&P 500 index (SPX).

Important differences between volatility options and other index options:


Quoting – Volatility-related index options quotes are based on the expected value at expiration, and are not the same as the "spot" price, which represents the current index value.
Expiration and settlement – Volatility-related index options normally expire on a Wednesday, with settlement completed the following day. The last trade day is typically the Tuesday before expiration.
The following CBOE volatility indexes are available:

Volatility-Related Index Underlying Index* Index Symbol* Settlement Symbol*
CBOE Volatility Index® S&P 500 (SPX) VIX VRO
CBOE NASDAQ-100 Volatility IndexSM NASDAQ-100 (NDX) VXN VSX
CBOE Russell 2000 Volatility IndexSM Russell 2000 (RUT) RVX RSL
* To access quotes or options chains through Power E*TRADE Pro or E*TRADE MarketTrader, enter a dollar sign before the symbol – for instance, $VIX instead of VIX.

VIX Q&A
http://www.cboe.com/micro/vix/VIXoptionsFAQ.aspx

Expiration
VIX index options normally expire on a Wednesday-more specifically, on the Wednesday that is 30 days prior to the next Friday SPX options expiration. (This is an important distinction from other index options, which expire on Fridays.) Typically, the last trade day for VIX index options is the Tuesday before Wednesday expiration.

The timing of expiration each month depends on how many weeks there are between SPX options expirations:

When there are four weeks between SPX expirations - VIX index options expire on the Wednesday before the third Friday of the month (not necessarily the third Wednesday)
When there are five weeks between SPX expirations - VIX index options expire on the Wednesday after the third Friday
Expiration dates for VIX index options in the second half of 2008 are:

August 20, 2008
September 17, 2008
October 22, 2008
November 19, 2008
December 17, 2008

Humor : Sure, it may be great for us, but it's hell on the markets.

Sure, it may be great for us, but it's hell on the markets.

Published in The New Yorker April 6, 2000

FBI Investigates 2 SEC Attorneys

Two enforcement lawyers at the Securities and Exchange Commission are being investigated by federal prosecutors and the FBI for possible insider-trading violations, according to a report from the SEC's inspector general.

The criminal investigation, which was disclosed to SEC Chairman Mary Schapiro in a March 3 memo, came about after SEC Inspector General H. David Kotz conducted his own investigation into the matter and referred it to criminal authorities after discovering suspicious trading activity.

The names of the two attorneys were redacted from the report, but Kotz said he has also recommended that disciplinary action be taken against them.

Barclays in talks to sell asset-management arm for $10B

BlackRock and Bank of New York Mellon are reportedly potential bidders for Barclays Global Investors, Barclays' asset-management division. An initial auction for BGI's exchange-traded funds unit, iShares, resulted in negotiations over the potential sale of BGI. Last month, Barclays agreed to sell iShares to CVC Capital Partners, but the bank can seek alternative bidders under the sale's "go-shop" provision.

more at

http://www.bloomberg.com/apps/news?pid=20601208&sid=av3WfOJhdsAQ&refer=finance

Nasdaq expects listings from China

Depending on Beijing's willingness to keep allowing Chinese firms to list overseas, Nasdaq OMX executive Robert McCooey said, he expects roughly 20 such companies to list with both Nasdaq and the New York Stock Exchange during the next year. "It depends on how China interacts with global markets and if they are going to push companies to list domestically or in Hong Kong," McCooey said.

more at

http://online.wsj.com/article/SB124227880447118633.html

Jobless claims surge

Government says 637,000 people filed for first-time unemployment benefits last week. Continuing claims at all-time high for 15th week in a row.

NEW YORK (CNNMoney.com) -- The number of people filing initial claims for unemployment benefits rose more than expected last week, while the number of people filing claims on an ongoing basis rose to a record high for the 15th straight week, according to a government report released Thursday.

A total of 637,000 people filed new claims for jobless benefits in the week ended May 9, the Labor Department said. That's an increase of 32,000 from an upwardly revised 605,000 in the previous week.

The tally was higher than expected. Economists surveyed by Briefing.com had forecast 610,000 initial claims.

The 4-week moving average of initial claims, which smoothes out volatility in the measure, rose 6,000 to 630,500.

Thursday's report could reflect filings by Chrysler employees affected by the automaker's declaration of bankruptcy last month, analysts said.

Independent stock-analysis arrangement to end in summer

As part of a regulatory settlement, the largest firms on Wall Street agreed five years ago to give their clients independent analysis of stocks. The agreement comes to an end in July, a development that is expected to hit independent stock-research firms as well as individual investors. "During the settlement period, I think the sell side worked hard to try to make their research more objective. The big question is: Without that competition, will we start to see a slide back to presettlement 'sell' levels?" said Michael Mayhew, chairman of Integrity Research Associates. "I'm not suggesting we will or not. I just don't know."

more at

http://online.wsj.com/article/SB124218264203713785.html

Greenspan rejects criticism of loose monetary policy

Alan Greenspan, former chairman of the Federal Reserve, said he "respectfully" disagrees with criticism that loose monetary policy contributed to the housing bubble and bust and ensuing financial crisis. Greenspan said housing activity is not driven by the overnight rates that the Fed sets but long-term interest rates. He also said the housing boom began before the Fed began reducing interest rates in 2001. "I think there is a recalibration of financial history that I find very puzzling," Greenspan said. 

more at

http://online.wsj.com/article/SB124215788386911895.html

U.S. could lose triple-A credit rating

Signs are emerging that there is eroding confidence in the country's ability to maintain solid credit ratings, former Comptroller General David Walker writes. That instability would only worsen with costly health care reform or a failure by the government to rein in its budget process. "The U.S. government has had a triple-A credit rating since 1917, but it is unclear how long this will continue to be the case," Walker writes.

more at

http://www.ft.com/cms/s/0/5534bd04-3f27-11de-ae4f-00144feabdc0.html

European Data Signal Big GDP Drop

Record slumps in French and Italian industrial production during March suggest the euro-zone economic contraction in the first three months of the year will be the sharpest ever.

Italian industrial output fell 24% in March from the same month a year earlier, while French industrial production fell 16% over the same span.

The dismal figures had economists rushing to mark down their projections for euro-zone gross domestic product in the first quarter, which is to be officially announced Friday.

The latest forecasts point to GDP contracting by between 2% and 2.5% from the previous quarter - around three times the pace recorded in the recession of the early 1990s - and by more than 4% from the same period a year earlier. 

After exploding, ETF industry poised for consolidation

The industry of exchange-traded funds has experienced rapid growth since it exploded on the investment scene. Market volatility is still high despite a recent rally in stock markets. The volatility helps boost interest in low-cost, flexible ETFs. Experts said the next step for the ETF industry, which has added numerous variations in the past couple of years, is likely consolidation.

more at

http://www.businessweek.com/investor/content/may2009/pi2009058_328608.htm?chan=top+news_top+news+index+-+temp_news+%2B+analysis

Gold/Silver Ratio To Drop

The gold and silver ratio topped out at nearly 80 late last year. Since then it has been on a steady decline, holding between 70 and 80. Today’s gold to silver ratio is around 65. That is, it currently takes about 65 ounces of silver to buy 1 ounce of gold. It has recently broken the support level at around 68 and will likely continue moving towards the 50 level and possibly lower in the coming months. For hundreds of years this ratio remained relatively steady at around 15. This makes sense from a geological perspective in that the frequency of occurrence of silver in the earth’s crust happens to be about 15 times that of gold. Over the past 100 years however, we have seen violent swings in the gold to silver ratio. Investors may want to consider holding.
There are a number of reasons why this ratio is out of line with its historical standards. Drastic changes to the financial system have taken place, especially since the formation of the Federal Reserve in 1913. Governments have debased the currency several times only to move to a system that we have today; a system backed by nothing but debt. The current system has evolved into something that allows for manipulative practices on the part of the government and the government banks. These manipulative practices go hand in hand with market turmoil such as seen in the Great Depression, inflationary 70’s, and the current depression. The ratio will most likely move back towards its historical average in the coming months as we move out of the current depression into an inflationary depression.

There are several factors brewing in this market which may cause the silver to outperform gold. These include the supply deficit, investment demand and the potential for a forced short covering. The world has been consuming more silver than it has been producing for more than a decade. The excess demand has been met through scrap supply, which is currently dwindling.

Barclays posts 15% rise in pre-tax profits

UK banking group Barclays has recorded a 15 per cent rise in its first quarter profits along with record income, it has been announced.

The bank said profits before tax for the three months to March 31st was £178 million ($269 million) higher than it was in the corresponding period of 2008 at £1,372 million.

Over the same period, income rose by £2,427 million - or 42 per cent - to a high of £8,150 million. Barclays said the rise was mostly driven by "very strong performances" from its Barclays Capital division and most of the international businesses in its Global Retail and Commercial Banking arm.

First quarter costs increased by 37 per cent on 2008 to hit £4,461 million, reflecting increased expenses and last year's acquisition of Lehman Brothers' North American investment banking and capital markets operations.

Barclays Q1 results also included net losses from credit market writedowns of £2,152 million.

John Varely, Barclays Group chief executive, said: "We recognise the importance of continued capital generation and we remain committed to prioritising returns over growth and to reducing leverage."

Over the first quarter, Barclays' costs to income ratio was 55 per cent and diluted earnings per share stood at 7.6 pence.

Deutsche Börse receives four Global ETF Awards

Awards for Deutsche Börse as the exchange with the largest number of ETF listed products, as the most proactive exchange for ETFs, the largest exchange for ETFs by turnover and the most innovative ETF index provider. This year’s Global ETF Awards in New York saw Deutsche Börse receive awards in the following categories for the fifth consecutive time: “Exchange with the largest number of ETF listed products Europe”, “Most Proactive exchange for ETFs Europe” and “Largest exchange for ETFs Europe (by turnover)”. Deutsche
Börse also received the award as “Most innovative ETF Index provider Europe” for the second time in a row.

The “5th Annual Global ETF Awards” was organized by exchangetradedfunds.com, an information provider based in New York which specializes in exchange traded index funds. The Global ETF Awards are presented to innovative companies that make outstanding contributions to the development of the ETF market. The awards are decided by international entities from the ETF industry, and based on statistics.

Xetra, Deutsche Börse’s fully-electronic pan-European trading platform, is Europe’s largest trading venue for exchange traded funds with a market share of 39 percent. Out of 14 issuers, its product offering is the largest in Europe, currently with 445 ETF and 136 ETC listings. It enables investors to compile a broadly diversified portfolio of equities, bonds and commodities with low transaction costs. More than 250 market participants from 18 countries have access to trading in index products at Deutsche Börse.

Deutsche Börse’s Market Data & Analytics division develops, calculates and disseminates around 3,000 indices, making it one of the world’s most renowned index providers. The Deutsche Börse indices have clear and transparent index rules and are aimed at tradable and liquid securities. This makes them attractive for investors, product developers and issuers the world over. Over €11 billion is invested in ETFs based on Deutsche Börse indices. DAXglobal® Russia index is one of the world’s most successful underlyings for ETFs.

The world’s first ETFs to be issued on derivative strategy indices are based on Deutsche Börse’s DAXplus® Covered Call and Daxplus® Protective Put indices.

ETFs have developed into one of the most successful financial products in Europe within nine years. Thanks to continual cash inflows, Deutsche Börse’s XTF segment has recorded excellent growth rates since its launch in April 2000. Fund assets reached the record level of €81.3 billion as of the end of December 2008 – in spite of the financial crisis – and were thus 26 percent above the prior-year level (Dec. 2007: €64.3 billion). In contrast, the MSCI World Index lost 39 percent in the same period. The growth has been driven by increasing recognition and the variety of uses for ETFs and ETCs, which can be used in a growing number of markets and regions thanks to numerous new product launches.

Total annual turnover reached a new record level in 2008, of €123.5 billion, a year-on-year increase of 13 percent. The average monthly trading volume in 2008 was over the €10 billion mark for the first time, with October the best month of the year with over €16 billion.

Turnover and assets under management decreased slightly in the first quarter of 2009. Assets under management fell by 7 percent to €75.4 billion by the end of March 2009. The average trading volume for the first three months of the year amounted to €9.0 billion.

Stress test results

The results of the stress tests by bank are shown on pg. 10.

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090507a1.pdf

Those who don't need capital: AXP, BBT, BNY, COF, GS, JPM, MET, STT, USB.

Ex-Morgan Stanley MD denies insider trading charges

A former managing director of Morgan Stanley Asia has pleaded not guilty to charges of insider trading in Hong Kong.

Du Jun is accused of nine counts of insider trading, as well as an additional count of counseling a person to buy shares in a listed company prior to the announcement of an acquisition deal.

He was charged in July 2008 by Hong Kong's Securities and Futures Commission over a 2007 deal involving shares in Citic Resources Holdings.

Prosecutor Charlotte Draycott told the court that at the time, Mr Du worked for Morgan Stanley's fixed-income arm, which was helping Citic issue bonds to finance the acquisition of oil fields.

He was explicitly told that he should not trade in shares of the firm, but nevertheless bought

26.7 million shares of Citic Resources for approximately HK$86 million ($11.1 million), she added.

Mr Du is also alleged to have tipped off his wife to buy shares in the firm prior to the acquisition deals being made public.

If convicted, he faces up to seven years in prison, Bloomberg noted. Until 2003, insider trading was only punishable with a fine in Hong Kong.

'Too Big To Fail' Should Go

The revamp of the U.S. financial system needs to focus on encouraging smaller and less complex firms over the "too big to fail" companies at the center of the current economic turmoil, top U.S. economic officials told lawmakers.

The day before the U.S. government releases "stress test" results for 19 banks the government will not allow to fail, Federal Reserve Bank of Minneapolis President Gary Stern said officials needs to "reduce the probability and magnitude" of any future bailouts of the financial industry.

"We have to try and put ourselves in a position so that even if you do have to bail someone out .. you want to make sure the next steps you take reduce the probability you'll have to do it again," Stern said before the Senate Banking Committee.

About 10 stress-tested banks reportedly need more capital

Although the exact number is being debated, about 10 of the 19 banks involved in the government's stress tests need to boost their capital, sources said. Bank of America, Citigroup, Wells Fargo and regional banks are expected to be on the list. By raising capital, the financial sector might curb investor concerns. However, investor fears already seem to be abating as bank stocks soared Monday.

more at

http://online.wsj.com/article/SB124148189109785317.html

Pending Home Sales Index Rises

A forecasting gauge of home sales rose more than expected in March, buoyed by first-time home buyers taking advantage of lower prices.

The National Association of Realtors' index for pending sales of previously owned homes rose 3.2% to 84.6 from a revised 82.0 in February, the industry group said.

Private analysts projected pending sales would grow just 1.0% during March.

The gauge rose to a revised 82.0 in February from 80.4 in January.

Still, Lawrence Yun, NAR chief economist, said it's too early to declare a housing market recovery.

Construction Up First Time In 6 Mos

Total U.S. construction spending rose for the first time in six months in March, beating analyst expectations as public sector outlays increased.

U.S. construction spending rose 0.3% to a seasonally adjusted annual rate of $969.7 billion during the month, the Commerce Department reported. Analysts expected construction spending would fall by 1.3% in March.

U.S. construction spending has been falling since September, taking with it thousands of construction jobs. It has fallen more than 11% on a year-over-year basis.

In revising February's construction spending estimates, the Commerce Department on Monday said spending fell 1.0%, slightly more than its original estimate of a 0.9% drop.

CME Group volume falls 23% in April

Exchange operator CME Group Inc. said Monday trading volume declined 23 percent in April.

Average daily volume across all its trading platforms, which include commodities, futures and derivatives contracts, slipped to 9.2 million contracts per traded per day in April, compared with 11.9 million traded daily during the same month last year.

The sharpest decline in trading came among interest rate contracts. Interest rate product volume fell 45 percent in April to 3.3 million contracts traded per day. With interest rates remaining low amid the ongoing recession, trading of derivatives contracts tied to rates has sunk in recent months.

E-mini contracts were the only product to see an increase in trading in April. Average daily volume for e-minis rose 18 percent to 2.9 million contracts per day, from 2.5 million per day in April 2008.

E-minis are futures contracts that are benchmarked to popular broad-based stock indices, such as the Standard & Poor's 500 or the Russell 2000.

Shares of CME Group rose $11.75, or 5.2 percent, to close Monday at $234.34.

Fairfield Greenwich Rejects Fraud Allegations

The largest "feeder fund" to Bernard Madoff's fraudulent investment scheme rejected Wednesday allegations by Massachusetts regulators who say it misled investors in its knowledge of Madoff's business.

Connecticut-based Fairfield Greenwich Group, whose Sentry funds lost $7.2 billion to Madoff, said the fraud allegations were "so filled with errors and factual distortions as to completely misstate the conduct" of the firm.

Madoff, 71, a former chairman of the Nasdaq stock market, was arrested on Dec. 11 and pleaded guilty on March 12 to charges accusing him of perpetrating a fraud worth as much $65 billion over 20 years. He is in jail pending sentencing.

Fairfield said consistent returns and low volatility from Madoff were expected given his supposed trading strategy, known as a "split strike conversion", along with Madoff's other supposed strategies including investments in Treasury bills.

Galvin's complaint said Madoff coached Fairfield executives, who once managed about $14 billion, on how to respond to questions from the Securities and Exchange Commissions in 2005.

Hedge Funds Expect Regulatory Hammer to Fall Within Six Months

Hedge funds are gearing up for a stricter regulatory environment, and examining the technology they will need to comply with any new requirements.

A recent panel discussion hosted by the global organization "100 Women in Hedge Funds" and vendor Linedata Services, focused on a need for funds to provide better transparency for regulators and investors.

New regulations are expected to include forcing hedge funds to register as advisors, and potentially to open their books and records to the SEC, said Annie Morris, managing director, Linedata Services.

The hedge fund community expects new regulations to be announced within the next six months, Morris added.

Meanwhile, the panel of 150 Boston-based hedge fund professionals heard that many hedge funds are now scrambling to adopt stronger electronic infrastructure.

"Some smaller funds don't have large IT staff. So how do they put technology in place? Do they manage their own servers or set up a business disaster recovery plan? It can be outside what hedge funds might want to get into," Morris explained in an interview with WS&T.

"Technology is the key to transparency and addressing the compliance rules that are coming up," she said.

100 Women in Hedge Funds is a global association of more than 10,000 professional women. Founded in 2001, the organization focuses on educational programming, professional initiatives and philanthropy.

Arthur Nadel Pleads Not Guilty

A jailed Florida hedge fund manager pleaded not guilty on Thursday to an indictment of running a $360 million investment fraud and his lawyer asked a judge to ease the conditions for him to make bail.

Prosecutors say Arthur Nadel, 76, went on the run for two weeks in January before his arrest on initial charges, but his lawyer said he is in poor health and not a flight risk.

Nadel's funds, one of several purported swindles that unraveled in the financial industry meltdown and after the high-profile Bernard Madoff scandal, enriched him and defrauded 350 clients who invested more than $360 million, the government said.

Judge John Koeltl in U.S. District Court in Manhattan heard Nadel plead not guilty to 15 charges in an indictment filed on Tuesday, including securities, mail and wire fraud.

If found guilty, Nadel will spend the rest of his life in prison. Each charge carries a maximum sentence of 20 years imprisonment.

Properties in Florida, North Carolina and Georgia and an aircraft company in Georgia are among the assets the government wants Nadel to forfeit.

Nadel pleads not guilty to $360m investment fraud

Hedge fund manager Arthur Nadel has pleaded not guilty to a 15-count indictment accusing him of orchestrating a $360 million investment fraud.

Federal prosecutors contest that Mr Nadel engaged in securities fraud, wire fraud and mail fraud to dupe 350 investors into handing over their money.

According to the government's complaint, the hedge fund manager collected millions of dollars in fees by misrepresenting the historical returns and assets of the funds under his control.

Investors are said to have been misled by the alleged fraud for the last ten years.

Mr Nadel is currently in custody as he cannot meet the conditions of his $5 million bail. Judge John Koeltl scheduled a hearing for June 4th to hear arguments over the bail conditions.

Defense attorney Mark Gombiner said he would dispute the government's contention that Mr Nadel represents a flight risk.
The hedge fund manager went missing when he was initially charged with fraud by the Securities and Exchange Commission. He turned himself in two weeks later in Florida.