More Banking BS, Greeks Storm Athens Stock Exchange, Oil Industry Mega-Merger, Home Price Woes and More!

by Addison Wiggin & Ian Mathias

  • Another SEC screw-up… BofA steals billions, pays shareholders pennies
  • Conspiracy confirmed: The twisted circle of Goldman, AIG, CDOs, CDSs and your tax dollars
  • Greeks storm Athenian stock exchange… Byron King with some brutal truth for the region
  • Chris Mayer takes notes on one of the biggest oil service mergers in history
  • Plus, home prices could plunge again… the father of the CS home price index weighs in

  “This is half-baked justice at best,” U.S. District Judge Jed Rakoff wrote in an opinion yesterday afternoon. The SEC sued Bank of America for lying to their shareholders over the company having been forced to buy Merrill Lynch.

In a move that smacks of some backroom deal you and I will never be privy to, the SEC sued for only $150 million. That’s 2.4% of the $3.6 billion in 11th-hour bonuses Merrill execs awarded themselves days before they merged with BofA. It’s an even smaller fraction of the $4.4 billion bonus pool Bank of America henchmen enjoyed last year.

Half-baked justice? Yeah. On a pure cost-benefit model, it’s more like incentive for execs from BoA and Merrill and the Treasury and whoever else to go out rape, pillage, lie and steal all over again. Contrary to our Unofficial Unauthorized Darwin Awards, these companies and execs climb the food chain when they concoct corrupt insider schemes.

Good luck restoring confidence in the financial system while they’re still lounging in the corner office… rather than in a cell next to some fat guy with Mom tattooed on his arm. Oy.

  Even more for the “Wall Street Ire” file this morning: It has now been confirmed that Goldman Sachs bet against the very subprime assets it sold to AIG, which ultimately caused the insurers collapse. Here’s the breakdown, per a Bloomberg report and documents recently released from the House Committee on Oversight and Government Reform:

· Goldman Sachs underwrote $17.2 billion of CDOs for AIG, more than any other firm

· Knowing precisely the garbage it had underwritten (our assertion), Goldman bought billions in credit default swaps that would rise in value as AIG stumbled (fact)

· AIG ultimately paid Goldman — with taxpayer dollars confiscated by many former Goldmanites in the Treasury — the full value of their default contracts: $14 billion.

Of course, all this has been suspected for so long that it was assumed to be true… but now it’s in stone. How this isn’t securities fraud, we don’t know… it’s like selling a teenager napalm (that you made in your backyard) and buying fire insurance on his dad’s house.

  Perhaps “we the people” should man up and march on Manhattan… like the Greeks!

Rough translation, right idea

That’s the scene in front of the Athens stock exchange this morning. The Greeks have accurately assessed that the expenses of government and the resident plutocracy will likely be paid by the Average Alexandros, and are thus barricading the country’s stock exchange and vowing to strike all day Wednesday.

Heh, but lest we think too highly of the Greek movement today… this march against pseudo-socialism is being sponsored largely by the Greek Communist Party. What’s a self-respecting believer in free markets to do these days?

  “German Business Confidence Unexpectedly Declines,” Bloomberg headlines this morning. Heh, unexpected to whom? The blissfully unaware?

The Ifo Institute’s business climate index fell in January for the first time in 11 months, from 95.8 to 95.2. In light of all the insanity coming from the PIIGS and the stress over the euro, we’re only surprised it didn’t fall by more… like (gasp!) an entire point.

“Can you fault the Germans?” our Byron King asks. “Germany is a nation of high industrial productivity and strong monetary discipline. It can’t abide, and will not subsidize, the free-spending habits of the fiscal libertines down in Greece (not to mention Italy, Spain and Portugal). The usually polite German magazine Der Spiegel pulls no punches last week, entitling one article ‘Lies, Damned Lies and Greek Statistics.’

“In Greece, they’re faced with the hard fact that they have too much government and not enough productive economy. Even with their backs to the wall, the Greek politicians won’t make painful budget cuts. Greece needs a miracle — if not a bailout — just to keep the lights burning and the civil servants paid.

“Does this seem similar to what’s going on in California, or New York, or Michigan, or maybe even the whole United States of America? As that ancient Greek philosopher Plato once noted, ‘If the sandal fits, wear it.’

“What’s happening in Greece is a dress rehearsal for the tragic drama that’ll play out in the U.S. over the next generation or so. Too much government, too many obligations and not enough money to pay for it. To use a Greek concept, it’s destined. Something has to give, and my bet is that sooner or later, the U.S. dollar will go Greek on us.”

Of course, that’ll be to the benefit of Byron’s Energy & Scarcity investors, whose holdings in energy stocks will likely rise. But they won’t have to wait for dollar collapse… on Friday, ESI readers cashed out of their position in Tullow Oil for a 98% winner in just 14 months. Make sure you’re on board for his next pick, right here.

  For now, the euro is the world’s whipping boy. It fell about a full cent early this morning, to $1.35.

“With rumblings of dollar tightening and the Greece situation,” writes our currency man Bill Jenkins, “the upcoming week provides very little in the way of news. At the very least, it has more risks to the downside than the other way around.” Yesterday, Bill picked up $1.36 puts on the euro… they’re well in the money today. For help trading currency moves, see Master FX Options Trader, here.

  The dollar index bumped up about half a point on the above news, to 80.6 as we write.

  Gold’s holding its own, considering the dollar rally. The spot price is down about $5-10 from yesterday, to $1,110. And as we noted yesterday, oil’s had quite a run lately. But the party is over today… a barrel is worth a buck less, at $79.

  Schlumberger just pulled off a super-sized acquisition of Smith Intl. In an all-stock, $11 billion transaction, SLB is now by far the world’s biggest oil service company. Should revenues stay the same, Schlumberger will be double the size of Halliburton, its closest competitor.

“The deal says two things to me,” Chris Mayer adds. “First, it’s tailor-made to help the oil and gas business exploit tough-to-get-at resources, such as shale gas and deep-water fields. The two companies can share technology. And the financial clout of the combination will make for one heck of an R&D budget.

“It also tells me that things are looking up in the oil and gas business — and that stock prices of service stocks are still cheap. As Schlumberger’s chairman, Andrew Gould, said, ‘It probably would not have been possible at the top of the cycle, because valuations would have been out of alignment.’

“I think the window is closing to make good acquisitions, though. As it is, Schlumberger paid a 37.5% premium to Smith’s price on Feb. 18 — before the rumor mill put a charge into the stock price.

“I think Schlumberger probably overpaid. The market didn’t like it either, taking off $2.5 billion from Schlumberger’s market cap. These giant acquisitions rarely work out well for the acquiring company. When the oilmen get excited about the synergies of a combination, price considerations tend to get lost…

“In any event, the oil market looks good and lively to me. In early 2009, it looked like it was near death, but the recovery in oil prices, China’s increasing imports and an active M&A market are all portents of good things for investors in oil.”

  Home prices are falling again, says the latest rendition of the Case-Shiller home price index. National home prices fell 2.5% year over year in the fourth quarter of 2009, the group claims. Both the 10-city and 20-city indexes dropped 0.2% from the previous month.

That puts the average home price down 29% from its 2006 peak, back to prices typical of summer 2003. Ouch. Here’s a fresh way of observing this train wreck:

“This isn’t a forecast, but it’s a worry,” Robert Shiller, founder of the index, told unwilling ears on CNBC, “that home prices might drop substantially from here foreword, once this [government] support is taken away… Mortgage rates will go up, the economy might double dip, the expectations for housing — which helped drive the markets — might change suddenly when people see the support being withdrawn. Some people were buying because of the homebuyer tax credit. When that’s withdrawn, a lot of people will be absent the market. There is substantial downward risk right now.

“But on the other side,” he added, unable to control laughter sprung from true insanity of it all, “we’ve seen a bubbly nature in the market recently. So I think just uncertainty is at a maximum right now.”

Indeed. And “maximum uncertainty” is nirvana for options traders, which is one reason we’re offering a handsome discount on Options Hotline today. It’s one of our longest running services, and now’s a great time to check it out. Details here.

  “I note that in your listing of countries that have external debts greater than 100% of their GDP,” a reader writes, “of the top (worst) 15 that include four of the five PIIGS, 14 of them are worse than Zimbabwe, which you single out, including France and Germany. But the very worst was Luxembourg, with 4,287% of GDP, yet there is little press given to this country in the EU, while the world frets over Greece’s debt situation.

“Seems like Luxembourg is getting very special treatment… strange, indeed! Could it be that one of the EU officials makes his home there? The political stench can be smelled all the way to Florida!”

  “Spain’s claim to ownership of the Black Swan treasure would be not unlike Germany wanting to recover the art looted by the Nazis,” a reader writes, responding to our announcement yesterday. “If anyone has a claim other than Odyssey, it would have to be the Amerindians, from whom the Spanish stole and extracted it using slave labor. Next in line would be England, which has an arguable claim as a prize of war.

“If Spain has any claim to this treasure, it must also have claim to all of the Spanish treasure recovered in Florida as well. I hope your documentary addresses these absurdities.”

The 5: We’re already learning more about the politics of undersea archeology than we ever expected to in our lives. We began shooting at a conference in New Orleans last week that almost barred entry to our camera crew because “only serious discussions” were being allowed at the conference. Somehow, we fooled them into believing we’re serious. This week, we’re headed to London for a similar exhibition at the British Museum. We’ll be broadcasting outtakes and such as we make the film… so stay tuned.


Addison Wiggin

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