With the Fed taking a slow walk to the sidelines, diminished returns ahead seem to be on the minds of many market participants.» Read More
Avid business news junkies and hedge fund traders everywhere are probably dying to know what kind of wine John Kinnucan was drinkin’ when the Feds came “a knockin”. I know I was— so I asked him. “Nebbiolo”, he said. “An Italian red wine”.
Just in time for the holidays, the Feds are unwrapping a far-reaching, market rattling, potentially industry shaking insider trading probe. Familiar names including Janus Capital, Wellington Management and SAC Capital have been roped in. Also, unfamiliar names including one John Kinnucan, founder and sole employee of Broadband Research. John was our guest Tuesday on “The Strategy Session” with David Faber and Gary Kaminsky . John was also the focus of an article Monday in The Wall Street Journal that will change his life forever.
How will it change his life?
US companies are still sitting on a trillion dollar plus cash mountain, but this hasn’t changed the fact, some say, that they continue to squirrel away hundreds of billions of dollars in perhaps the least sexy of all places: the bank.
“You’re just not getting paid to do anything right now," says Brian Kalish, head of the finance practice at the Association for Financial Professionals. "You’re in this ultra low-yield environment...leaving the money in the bank isn’t costing you anything.”
If holding cash in the bank seems a bit…pedestrian, that’s because it kind of is. Many companies could be putting their short-term portfolio to work through a range of strategies, including agency securities, munis and asset-backed securities. But many are even passing on the king of low-risk investments—Treasury bills—as rock-bottom rates make tying up cash in short stints less attractive than the ease of having cash at hand.
S&P Cuts Irish Debt Two Steps, Outlook Negative (Bloomberg) The article quotes Standard & Poor's: "The Irish government looks set to borrow over and above our previous projections to fund further bank capital injections into Ireland’s troubled banking system," Hence, the cut from AA- to A for long-term, and the short-term grade cut from A-1+ to A1. According to the article, the negative outlook stems from"the risk that talks on a European Union-led rescue may fail to stanch capital flight."
Big Firms Now Inside Crosshairs of Insider Trading Probe \(Wall Street Journal\) As we reported yesterday, some of Wall Street's bigger players are now being investigated: "Hedge-fund giants SAC Capital Advisors and Citadel LLC, big mutual-fund company Janus Capital Group Inc. and Wellington Management Co., one of the nation's biggest institutional-investment firms, have received subpoenas from the Manhattan U.S. Attorney's office seeking trading, communications and other data as part of a broad criminal investigation, according to people familiar with the matter." One of the centers of the investigations seems to be the companies that provide "expert-network" services. The Journal article explains: "Such expert-network firms set up meetings and arrange calls between traders seeking an investing edge and current and former managers from hundreds of companies."
Some broad trends seem to have emerged from the Federal Open Market Committee meetings held on November 2nd and 3rd and released earlier today.
Parsing the cryptic language of FOMC minutes is never easy — because every point seems to have a counterpoint. But the minutes seem to suggest that most participants in the meetings are still concerned about growth and unemployment:
"Participants generally agreed that the most likely economic outcome would be a gradual pickup in growth with slow progress toward maximum employment. They also generally expected that inflation would remain, for some time, below levels the Committee considers most consistent, over the longer run, with maximum employment and price stability."
That would seem to suggest that the economy is growing, and unemployment is falling — but not as quickly as it should be. And that interpretation would seem consistent with recent policy actions taken by the Fed — namely a second round of quantitative easing.
Major selloff in equities on a dismal news day (MarketWatch) The bad news today was so varied that it's difficult to pick a single source of tribulation as the cause of a major decline in equities, both in the US and abroad. The day began with the beginnings of a major crisis on the Korean Peninsula — with North and South Korea exchanging mortar fire. Then, there were speculations about political instability in Ireland, driven by the broader story of a threatening European debt crisis. Next, a broadening of investigation in the United States into insider trading, which now includes large market players SAC Capital and Janus. Finally, a lowered forecast for domestic growth from the Federal Reserve.
The approach to insider trading that the government is lately employing got an interesting test today.
The government has reportedly been going after networks of experts and outside consultants that it says provide hedge fund traders with non-public, proprietary information.
Well, this afternoon, shortly before it was officially announced that shares of Janus Capital Group would stop trading pending a company announcement, the shares took a nose dive on spiking trading volume. In other words, a bunch of people apparently had the non-public knowledge that something was happening at Janus before it was announced.
Where did this information come from? If you look at the chart, the shares spike downward right around 1:48. So was some nefarious tipster letting his friends know about the pending halt and announcement?
In what may be today's most titillating—though maddeningly vague—newsflash, SAC Capital Advisors informed investors that they have received a government subpoena.
The subpoena is presumably in connection with a massive insider trading investigation , which began over three years ago, but culminated yesterday in a series of FBI raids on multiple hedge funds .
According to an article recently posted on MarketWatch , the subpoena received by SAC Capital is identical to the "extraordinarily broad" subpoenas received by other hedge funds.
The market watch article states that SAC Capital's letter to investors made the following points:
The financial blogosphere is beginning to buzz over new revelations about Countrywide Financials mortgage securitization practices. The new information came to light through the testimony of an employee of Bank of America , which now owns Countrywide Financials.
As I wrote in an article yesterday , the gist of the story is this: A Bank of America executive named Linda DeMartini testified in a New Jersey bankruptcy case that a promissory note, which later became relevant in a foreclosure proceeding, had not been properly transferred from countrywide to the mortgage's new owner. Countrywide had sold the mortgage to another financial institution, where it ultimately remained as part of a mortgage backed security. The pooling and servicing agreement, which governs the terms of the securitization, requires that the promissory note is physically transferred to the securitization trust.
But the biggest news in the article I wrote yesterday would seem to be a direct quotation from the judge's opinion in the bankruptcy case: "She [DeMartini] testified further that it was customary for Countrywide to maintain possession of the original note and related loan documents."
It’s no accident that Austrian economics is newly popular. It provides the best explanation for the business cycle we just lived through.
But the resurgent popularity of Austrian economics may actually be hampering the ability of the Federal Reserve to reflate the economy with low interest rate policies. Businesses, now aware of the dangers of a low inflation- sparked economic bubble, may simply be refusing to fall for the age-old boom-bust trap.
The Austrian theory of business cycles is rather straightforward:
*Update: Janus has resumed trading, as of 2:40*
*Update: MFS tells us that they have not received any request for information in connection with the federal insider trading probe.*
Trading in shares of the Janus Capital Group have been halted, apparently in anticipation of an announcement that federal authorities are looking at Janus as part of their insider trading dragnet.
John Carney is a senior editor for CNBC.com, covering Wall Street and finance and running the NetNet blog.
Jeff Cox is finance editor for CNBC.com.
Lawrence Delevingne is the ‘Big Money’ enterprise reporter for CNBC.com and NetNet.
Stephanie Landsman is one of the producers of CNBC's 5pm ET show "Fast Money."
Mastercard capped a busy year by executing one of the main drivers of the stock rally: A buyback.
With the Fed taking a slow walk to the sidelines, diminished returns ahead are on the minds of many market participants.
It's time for bond traders to place their bets on whether the Fed is ready to begin tapering its bond buying program.