CommStock Israel Investor
Insights Newsletter
Monday, June 8th, 2009
The following report has been prepared as a courtesy
to clients of CommStock Trading Ltd. for general informational
purposes only and is not intended to, and should not, be construed
as any recommendation or advice for any specific investment decisions.
1) Avoiding the next big financial
crisis
In the next few weeks,
the Obama administration will detail proposals to fix regulation.
It's controversial territory full of political minefields.
By Jennifer
Liberto, CNNMoney.com senior writer
June 5, 2009: 5:37 PM ET
WASHINGTON (CNNMoney.com) -- The Obama administration
plans to release updated details in the coming weeks to guide Congress
on the best way to reshape the nation's financial regulatory system
and prevent future collapses.
It promises to be controversial and even politically
dicey.
In fact, the administration is already shelving one
idea, because it's just too messy.
Treasury Secretary Tim Geithner has spoken of the need
to consolidate agencies in the patchwork world of financial regulations
to prevent companies from shopping for the easiest overseers. But
the Obama administration has now decided to keep separate two similar
regulatory agencies whose duties often overlap.
Both the Securities and Exchange Commission and the
Commodity Futures Trading Commission regulate complicated financial
products. Many experts have long argued that their consolidation
would result in stronger oversight.
But combining them could have created a power struggle
between their congressional overseers, pitting farm state lawmakers
who speak the language of pork bellies and corn bushels against
East Coast senators who talk stocks and bonds.
By sidestepping the merger issue, the administration
avoids a political turf war that threatened to slow efforts to
regulate the
kind of financial products that caused the collapse of American
International Group.
However, the decision provides a window into the kinds
of fights and compromises to come with bigger
tougher turf wars between regulators like the Federal Reserve
and the Federal Deposit Insurance Corp.
Both the Fed and FDIC stand to gain or lose power as
officials grapple with which gets new powers to decide when the
government needs to shut down or prune troubled companies that
threaten the greater financial system.
"This becomes a big political dance," said Robert Litan,
an economist and attorney at the Brookings Institution. "It's very
difficult to merge these activities, because some people gain power
and some people lose power. But if you don't do it now, you are
probably never going to do it."
A tale of two regulators
The division of labor between the SEC and CFTC works
like this: The SEC oversees securities -- which include shares
of companies, like stocks and bonds, that can be invested or traded.
The CFTC oversees trading of bets made on the future price of things
like oil or corn and even currencies.
But there's still a lot of overlap between the two,
especially with new kinds of financial products that could fall
into either category.
For example, it took years to figure out who should
keep an eye on a product called a "single stock future," which
is a contract that allows traders to bet on the future position
of a stock without actually owning it. (Both agencies regulate
single stock futures.)
Such overlap is why former Treasury Secretary Henry
Paulson suggested combining the two regulators in his March 2008
blueprint for "modernized regulatory structure." He warned that
globalization and "market linkages" make maintaining two separate
agencies "potentially harmful and inefficient."
A lot of people agree with that idea. Among them: SEC
Chairwoman Mary Schapiro, who told lawmakers on Tuesday that "there
is a logic and an efficiency that can be achieved through the merger
of the two agencies."
But politics comes into play when you look beyond the
two agencies and consider the congressional committees that control
and fund them.
The SEC answers to the House Financial Services and
Senate Banking committees.
The CFTC, originally created to regulate agricultural
financial products, answers to the agricultural committees on Capitol
Hill -- even though agricultural futures are less than 15% of what
the CFTC now deals with.
Most veteran congressional watchers say a merger would
give the banking committees more power, while the agricultural
committees would lose power. The agricultural panels don't like
that idea much. Their chiefs have espoused the
importance of maintaining the CFTC, saying its expertise would
get lost at the SEC. They've even filed bills that bulk up the
CFTC's power to regulate.
In addition, lawmakers who lose jurisdiction over the
CFTC could lose lucrative campaign contributions from banks and
investment firms.
During the 2008 election cycle, House agricultural committee
members collected $8.6 million and Senate agricultural committee
members collected $28.4 million from the financial services sector,
according to the Center for Responsive Politics.
What's next?
For the past few weeks, Geithner has been talking more
and more about streamlining
and combining agencies without giving any details as to how
he planned to do it.
During a dinner Wednesday for key lawmakers who sit
on both the banking and agricultural committees, Geithner indicated
he would not pursue a merger of CFTC and SEC, according to an industry
official familiar with the conversation.
On Thursday, newly-appointed CFTC Chairman Gary Gensler
told the Senate Agricultural Committee that a "merger for merger's
sake" wouldn't address any of the "lessons learned from the crisis."
"While it will always be out there in the ether, and
will be debated and discussed," Gensler said, "we have a heavy
agenda here for Congress. I don't see it really in the lead here."
House Financial Services Chairman Barney Frank, D-Mass.,
had never been a vocal proponent of such a merger and has recently
said he's more interested in "filling in the gaps in the financial
regulatory structure" rather than "moving boxes," spokesman Steven
Adamaske said.
Frank's committee has begun trying to figure out what
full-blown regulatory reform should look like, starting with oversight
of the kinds
of products that the CFTC currently doesn't oversee. Gensler
suggested that the SEC and CFTC should share such oversight.
2) Commentary by David Zwebner,
CEO of CommStock Trading
U.S. Economy
The U.S. Labor Department said that the unemployment rate increased
from 8.9% to 9.4% in May, higher than expected and the highest
since 1983. Non-farm payrolls were down 345,000, a smaller decline
than expected. The June 2010 eurodollars dropped .53 to 97.985,
the lowest close this year.
The Labor Department also said that
the number of jobs lost in March was reduced from 699,000 to
652,000 and the number lost in April was reduced from 539,000
to 504,000. The September U.S. T-bonds fell 1.14/64ths to 114.43/64ths,
the lowest in six months. The September U.S. dollar index finished
up 1.255 at 81.22, the best close in two weeks.
Grains and Cotton
July cotton fell 1.77 cents to 55.11, hurt by today's big jump
in the U.S. dollar.
Coffee
Dow Jones Newswires reported that "no damaging cold" is expected
for Brazil's coffee crop in the week ahead. September coffee fell
5.30 cents to $1.3585.
Sugar
July sugar closed up .29 at 15.53 with ongoing support from this
year's tight supplies.
Energies
Initially, August crude oil was higher after the jobs report came
out, but it closed down .34 at $69.35 while the U.S. dollar settled
higher.
Metals
Today's less-than-expected drop in the U.S. payroll numbers is
a good sign for better copper demand, but September copper closed
down 1.60 cents at $2.2960, pressured by the higher U.S. dollar.
Today's jobs report shows steady improvement in the
economy and makes many wonder if the days of low interest rates
are nearing an end. August gold finished down $19.70 at $962.60,
the lowest close in a week.
Currencies
Statistics Canada said that the unemployment rate increased from
8.0% to 8.4% in May, the highest in 11 years with a net loss
of 42,000 jobs. The number of jobs lost was more than expected.
The June Canadian dollar fell 1.74 cents to 89.48.
The Bundesbank
said that it expects real GDP in Germany to be down 6.2% in 2009
and flat in 2010. The September euro finished down 2.16 cents
at $1.3948.
The U.K.'s Office for National Statistics
said that its output price index was down .3% in May from a year
ago, down from an annual gain of 1.3% in April.
Japan's Finance Ministry
said that capital spending (exc. software) was down 25.4% in the
first quarter from a year ago, the biggest annual drop since records
began in 1955. The September yen closed down .0156 at 1.0178, the
lowest close in four weeks
David Zwebner, CEO
CommStock Trading Ltd.
Tel: +972-(0)2 624-4963
Fax: +972-(0)2 624-4876
www.ecommstock.com |
