Intrade Election Odds

For those following the New Jersey and Virginia gubernatorial races and the NY-23 special election, below we provide the odds that traders on are putting on various candidates. New Jersey governor John Corzine had a significant advantage over Chris Christie heading into today, with his odds to win at 70%. With polls out today showing Christie up by 2...

Why the Government Is Holding Up Goldman’s Tax Credit Deal

The heat really must be on Goldman Sachs Group if the Treasury is threatening to hold up the investment bank’s possible investment in affordable housing.

The WSJ reports today that the Treasury Department could scuttle Goldman’s attempt to buy $1 billion in affordable housing tax credits from Fannie Mae and Freddie Mac if it determines it isn’t in the “taxpayers’ best interests.”

What could possibly be wrong about an investment in rental housing for low income people?

Details about the tax credit deal are few (Goldman and the Treasury declined to comment on the specifics). But there are likely more twists than meet the eye, says Judy Kennedy, who heads the National Association of Affordable Housing Lenders, a nonprofit group that has been lobbying Congress to change the way tax credits are doled out.

Typically, banks or large companies buy such credits from the government to reduce their tax bills, The government then doles out the proceeds to developers building rental apartments for tenants earning 60% or less of median income.

Here are two potential issues that the Treasury may object to:

First, Goldman could use its purchase of the tax credits to satisfy requirements of the Community Reinvestment Act, which the investment bank now must abide by because it became a bank holding company last year.

The problem is that by buying these credits from Fannie and Freddie, Goldman wouldn’t be creating any new affordable housing since the credits have already been used to finance housing developments. That is because Fannie and Freddie have essentially acted as middlemen who bought up credits with the hopes of reselling them. The proceeds from the credits on the Fannie and Freddie balance sheets that Goldman is looking to buy have already been doled out to developers. The way to create new housing would be for Goldman to buy new credits directly from the government.

Also, it is likely that Goldman would be buying the credits at a discount. Why? Because its a buyers’ market. There have been no credits issued in more than a year and there are few buyers, as bank profits have been hit by the financial crisis. But, Goldman would be able to use the full face value of the credits to reduce its taxes.

Selling the credits to Goldman would lighten the load on Fannie and Freddie’s balance sheet in an illiquid market. And while that could benefit the taxpayer and the government, the scenarios above would be a PR disaster. “But should the government’s objective be to boost Fannie and Freddie’s balance sheet so less affordable housing can be built this year?” Kennedy asks.

Perhaps the solution is to have the Treasury buy the credits and hold onto them for sale when banks start posting dependable earnings again and have a desire to reduce their tax bills. This wouldn’t spark the building of new affordable housing in the near term, but it would prevent the appearance of gaming a badly bruised system.

Your CMBS tranche is in the mail

Here's your monthly dose of CMBStress -- courtesy of ratings agency Realpoint. After a small blip in July, delinquent CMBS resumed its upward decline, reaching a staggering $31.73bn in September -- up 583  per cent from a year ago. That works out to be a delinquency ratio of 3.94 per cent, over seven times the 0.54 per cent reported a year prior....

Chips: Q3 Worldwide Sales Rose 19.7% From Q2

Q3 worldwide semiconductor sales jumped 19.7% sequentially, according to new data from the Semiconductor Industry Association. But sales were down 10.1% from a year ago. Sales in September were up 8.2% from August.

SIA President George Scalise said in a statement that sales in the quarter were above expectations, and that September sales “were in line with historical patterns, reflecting increased demand from end-users as they began the build for the holiday season.” He notes that PC and cell phone sales are running ahead of previous forecasts.

“Amid signs that we are in the early stages of recovery in the global economy, semiconductor sales continue to reflect normal seasonal patterns,” he said. “Sales are running well ahead of the worst-case scenarios projected early in the year, and we are optimistic that total sales for 2009 will be better than our mid-year forecast.”

Taxpayers are, once again, the biggest losers in the CIT bankruptcy

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CIT Group (NYSE: CIT) has filed for bankruptcy -- which will lead to the wipeout of the United States taxpayers' $2.3 billion "investment" in the company.

At least, it was billed as an investment at the time, which it was, in the same way that lending your crack junkie cousin beer money is an investment.

"The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy," Jeffrey M. Peek, CIT's Chairman and CEO, said in a statement. "This market-based solution allows CIT to enter into the reorganization process well-prepared and positioned for a swift emergence."

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Taxpayers are, once again, the biggest losers in the CIT bankruptcy originally appeared on BloggingStocks on Mon, 02 Nov 2009 11:00:00 EST. Please see our terms for use of feeds.

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Be Wary of Claims of New Technology Hotspots

During the 1990s, cities around the country envious of the wealth California’s Silicon Valley was generating regularly proclaimed they were going to become the Silicon Valley of the Midwest or the Silicon Valley of Southeast. Illinois and Texas each boasted a Silicon Prairie, New York City had Silicon Alley.

In the end the entire exercise seemed, well, silly. Silicon Valley remains the center of computer and software innovation and those other places never lived up to their hype. Research by Harvard Business School economist William Kerr points to one reason why.

Mr. Kerr identified the top 1% of technology inventions issued in the U.S. between 1975 and 1984 (measured by subsequent patent citations) and found that the cities where those inventions were most concentrated saw the most patent growth in the years that followed. Much of that has to with how quickly scientists and engineers move to technology hotspots.

Immigrants, with fewer ties keeping them in any one place in the country, are even more mobile than the work force at large. Immigrants account for an outsized proportion of U.S. scientists and engineers, and their willingness to move to where the action is speeds the concentration of new innovation in technology hotspots, Mr. Kerr argues. Indeed, he finds that in technologies that employ larger immigrant work forces, innovation shows a faster tendency to become concentrated in one part of the country.

AMD: Ensnared in Galleon Scandal, Ruiz Steps Down As GlobalFoundries Chair

Hector Ruiz, a former CEO at Advanced Micro Devices (AMD), who had recently become chairman of the company’s GlobalFoundries chip manufacturing venture, is taking a voluntary leave of absence, and resigning effective January 4. The resignation follows news that Ruiz has been ensnare in the Galleon insider-trading scandal. Ruiz allegedly leaked information on the deal that resulted in the GlobalFoundries spin to one of the hedge fund employees charged in the Galleon case.

On an interim basis Ruiz is being replaced by Alan “Lanny” Ross, a member of the GlobalFoundries board, and a former CEO at Broadcom.

AMD today is up 17 cents, or 3.7%, to $4.77.

The SEC’s massive Friday night dump…

SEC logoBy now, you’ve probably heard or read about the massive document dump that the SEC unleashed on Friday night: 536 exhibits related to the Bernie Madoff case. Reading all of these — even figuring out which ones are worth reading — was all but impossible, even if it wasn’t earnings and 10-Q season. The New York Times, which has summarized 11 of them, tallied up the dump as being over 6,100 pages of material.

So far, the biggest headlines to emerge has been about Madoff’s jailhouse interview with SEC Inspector General David Kotz. The Times also posted highlights of interviews with former SEC Chairman Arthur Levitt Jr., William Donaldson, and Chris Cox. Exhibit #29 was also pretty interesting because in it, an SEC branch chief and assistant director for Compliance, Inspections and Examinations said he couldn’t remember “off the top of my head” what a Form 13-F was for. Even Kumara, my SEC file reading dog, knows what that one’s for!

But here’s the real rub: by dumping this kind of thing on a Friday night and providing no description next to the 536 exhibits, the SEC is essentially green-lighting companies to do the same thing with their filings. Right now, the overwhelming majority of companies provide some sort of description of what’s in the exhibits that they file, so that you can figure out whether a particular exhibit is worth reading. It’s the difference between stating “material contract” and “employment agreement with John Doe”.

Over the weekend, I asked the SEC why they chose to release the information this way and didn’t exactly get a good response. In a nutshell, the folks at the SEC blamed the OIG’s office for the Friday night dump and David Kotz, whom I spoke to this morning, said it was the SEC’s decision. “To be honest, I’m surprised that they did this on a regular Friday, instead of waiting for a holiday Friday to put this out,” Kotz told me a short time ago.

Not very reassuring, is it?

Lloyds short squeeze?

The chart below, from Data Explorers, shows that the mammoth short-selling interest in Lloyds Banking Group shows no sign of shrinking ahead of the restructuring it is expected to announce later this week: Almost eight per cent of all Lloyds shares being out on loan sounds like a hefty figure,...

NetEase Slides: China Agency Rejects World of Warcraft

As several analysts note this morning, China’s General Administration of Press and Publication (known as GAPP) has rejected an application from NetEase (NTES) seeking approval for World of Warcraft. The review process is now officially terminated. Goldman Sachs analyst Richard Ji notes that the company is required to stop the commercialization of WoW in China, and to end registration of new accounts immediately.

Last month, GAPP moved to tighten the rules on a ban in China on foreign content in video games; and of course, WoW is a property controlled by Activision Blizzard (ATVI).

Ji notes that there is still some uncertainty about what will happen; he notes that the game is not new to China, and had been previously approved when it was licensed to The9 (NCTY); he points out that it has been approved by the Ministry of Culture. A bull on the stock, Ji thinks NTES is worth $49 a share even In a worst-case scenario, in which the game is never approved for future use in China.

Along similar lines, Pali Research analyst Tian Hou today upgraded NTES to Buy from Neutral on a valuation basis; his price target is $45.

NTES today is down $1.13, or 2.9%, to $37.50. ATVI is down 18 cents, or 1.7%, to $10.65.

Probiodrug Raises $53 Million

LONDON (Reuters) - Privately held Probiodrug of Germany has raised more than 36 million euros ($53 million) to fund its work into Alzheimer’s disease in one of the year’s biggest fund-raisings by an unlisted biotech company.

The group said on Monday it had closed its second financing round co-led by BB Biotech (BION.S) and Edmond de Rothschild Investment Partners, joined by LSP Life Science Partners, Biogen Idec New Ventures (BIIB.O) and existing investors.

Probiodrug’s scientists are taking a novel approach to treating Alzheimer’s by inhibiting an enzyme in the brain called glutaminyl cyclase, which appears to be involved in a cascade of events that can lead to the formation of damaging plaques.

The new funds will be used to further progress the company’s early-stage drug research. ($1=.6784 Euro) (Reporting by Ben Hirschler; editing by Simon Jessop)


Vale S.A. (VALE): Mining for value in iron ore

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"We're adding Brazil's Vale S.A. (NYSE: VALE), the world's leading iron ore producer, to our model growth portfolio," says growth stock expert Stephen Leeb.

In his The Complete Investor, he explains, "This outstanding company offers investors simultaneous stakes in two key areas: iron ore-a commodity essential to any and all infrastructure projects-and Brazil's appreciating currency, the real.

"When it comes to understanding the importance of a commodity such as iron ore, the tale starts with China. Even with China's GDP growth again approaching double digits, the Chinese government continues to aggressively promote growth, offering consumers incentives to buy cars and investing in infrastructure, from roads to bridges to sewers to energy plants.

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Emerson Electric Net Falls; Cognizant Technology Net Up

Emerson Electric Co fourth quarter sales fell 20.6% to $5.32 billion and net income fell 26.5% to $506 million or 67 cents a share. Cognizant Technology Solutions Corporation third quarter revenues rose 16% to $853.5 million and net income rose 21% to $136.6 million or 45 cents a share.

Poland is the new Hungary, says BNP Paribas

Oh dear. Poland may have escaped the financial crisis with a positive GDP year to date, but that will not stop the country's fiscal situation souring in the year to come, according to BNP Paribas emerging markets analyst Michal Dybula. In fact, according to Dybula, Poland runs a real risk of coming to resemble Hungary circa 2002 - the year in which the latter country began to experience a bona fide fiscal collapse....

Juniper: Stifel Upgrades To Buy

Stifel Nicolaus analyst Sanjiv Wadhwani this morning upped his rating on Juniper Networks (JNPR) to Buy from Hold, setting a price target of $31. The stock closed Friday at $25.51.

The analyst writes that he came away from the company’s recent analyst meeting less concerned about market share losses to Cisco (CSCO), noting that the new Cisco ASR edge router “has gained limited traction over the past 6 months,” and asserting that Juniper’s own MX-3D products “have leapfrogged the ASP in scale and bandwidth capabilities.” He says checs find pent-up demand for MX-3D, “particularly at AT&T.”

Wadhwani adds that the company’s decision to offer licenses to its Junos networking operating system software “could be a wildcard” for revenue and profits. “Our checks show that it is possible a large IT vendors such as Dell could license Junos,” he writes.

JNPR today is up 35 cents, or 1.4%, to $25.86.

The 2009 home stretch could be bumpy for stocks

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Equity markets ended the third quarter with their biggest losses in four months, and we're now staring down the closing months of 2009. Half the quarter, of course, is dominated by holiday sales, which ups the stakes at the finish line and sets the tone for the bulk of 2010.

Even though company performances have been fairly strong through this reporting season, it's tough to shake the nerves associated with depressed consumer spending and high unemployment.

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Bonds Fall As ISM Rises

The 20+ Year Treasury ETF (TLT) bounced off support last week, but fell today as the ISM Manufacturing Survey surged to 55.7. Readings above 50 favor economic expansion. Bonds fell and the 10-Year Treasury Yield ($TNX) rose with this positive economic news. Signs of strength in the economy increase the chances that the Fed will raise interest rates in the future.


Click this chart for details.