The Enron Loophole

Vinny Catalano submits:Prior to listening to the weekend replay of the congressional testimony of George Soros and others from last Tuesday, I must admit I had never heard of the “Enron Loophole”. But it didn’t take too long to realize that this multi dimensional topic is economic and political dynamite.

Let me start with what I understand the key aspects of the “Enron Loophole” to be.

Back in December 2000, Congress passed and President Clinton signed into law the “Commodities Futures Modernization Act of 2000 [CFMA]”. While the CFMA attempted to resolve the dispute over jurisdiction between the SEC and the CFTC, two elements of the bill appear to have a direct impact on the markets and the financial services industry, specifically investment banks and hedge funds.

I will save the second point for a later report, as it requires further research before I feel comfortable commenting on the derivatives portion of the bill. What I do want to get to is what has come to be known as the “Enron Loophole”, a provision that was slipped into the bill literally in the dead of night by then-Senator Phil Gramm [R – TX].

...And I Could Do Better Than Lieberman

IndexUniverse submits:

By Jim Wiandt

Banning institutional investors from investing in commodities? The U.S. is an odd country - all for free market until we don't like the cycle.

Wall Street Breakfast: Must-Know News

• Goodbye Microsoft, hello Google. Yahoo (YHOO) said Thursday afternoon talks with Microsoft (MSFT), for its whole or any parts, are over -- and then turned around and signed a search-ad deal with Google (GOOG). Yahoo will begin selling Google Ad-sense ads alongside its own, which it thinks will generate $800M in annual revenue. The companies are still exploring how to further expand their relationship. The pact terminates if either company changes hands; Yahoo would have to pay Google a $250M termination fee during the first 24 months if it were to be bought by, say, Microsoft (MSFT). Microsoft meanwhile said it's still interested in pursuing alternative talks with Yahoo; a source says it was willing to pay $35/share for a 16% stake.
• Winners and losers, by the numbers. Shares of Yahoo (YHOO) fell 10.1% Thursday, and were down another 0.3% in extended trading after announcing the Google (GOOG) search-ad link-up. Microsoft (MSFT) gained 4.1%, Google (GOOG) was up 1.4%, and ValueClick (VCLK) jumped 3.5% on speculation Microsoft will set its sites on the remaining independent online ad company.
• Search-ad deal quickly scrutinized. The Justice Department has already launched an investigation into antitrust issues arising from Yahoo's (YHOO) and Google's (GOOG) search-ad venture: "This collaboration between two technology giants and direct competitors for Internet advertising and search services raises important competition concerns. The consequences for advertisers and consumers could be far-reaching and warrant careful review, and we plan to investigate the competitive and privacy implications of this deal further."
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• A-B turns to Modelo for help. Anheuser-Busch (BUD) is in preliminary talks with Mexico's Grupo Modelo about a possible merger that could help it fend off InBev's $46B takeover bid. A-B already owns about 50% of Modelo, brewer of Corona Extra. A combination could potentially make it too rich for InBev. An A-B (BUD) Modelo deal, though, is fraught with snags: Modelo's "cherished independence"; years of hostility and resentment; and the likelihood of massive shareholder opposition.
• Pfizer mulls counter-bid for Ranbaxy. Sources say Pfizer (PFE) is considering a counter-bid for majority control of number-one India pharmaceutical company Ranbaxy. Japanese drugmaker Daiichi Sankyo made a bid worth up to $4.6B on June 11, and has already acquired a 34.8% stake from the company's CEO and his family, to which it wants to add another 17%. The remaining 65% of the company's shares are held by institutions and individual investors. Despite Ranbaxy's binding agreement with Daiichi, a counter-offer is still possible within 21 days.
• Apres vous. TeliaSonera wants France Telecom (FTE) to sweeten its $41B bid from 56.2 to 60 krona per share. Sources say France Telecom has expressed willingness to boost its offer, conditional on sitting down to talk with the Swedish telecom. Other sources say TeliaSonera will not open talks with FTE unless it first sweetens the pot.
• Economists back Fed. Despite widespread financial fallout, economists surveyed by the WSJ are vocal in their support of Fed policies. 75% of economists think the Fed is showing enough concern about inflation -- up from 60% in May. Two-thirds of economists think the Federal Reserve is showing the right amount of concern about the value of the U.S. dollar. They see no more rate moves this year, and a half-point increase to 2.5% by mid-2009. They also think the Fed can get a grip on inflation: they now forecast 2.4% CPI growth, down from 3.9% in April. Bernanke's odds of being re-elected in 2010: 60% if Obama wins, and 73% if McCain does.
• Lehman hopes to turn things around. Shares of Lehman (LEH) fell 4.4% after CFO Erin Callan and COO Joseph Gregory resigned, as the company hopes to put the brakes on its rapidly falling share price and investor confidence. Callan's spot will be filled by Lehman veteran Ian Lowitt. Herbert McDade, another old hand, moves to president and COO. "If you do bad things and get bad results, you should be fired," analyst Dick Bove said. "Feeling sorry for people on Wall Street is like feeling sorry for Attila the Hun."
• Verizon gives Palm a hand. Shares of Palm (PALM) climbed 10.3% after Verizon Wireless (VZ) (VOD) said it would begin selling its $99 Centro smartphone Friday. Some analysts say Palm is still cheap.
• Biotech tool companies merge. Invitrogen (IVGN -10.7%) said it is buying Applied Biosystems Group (ABI +5.3%) for $6.7B in stock and cash. The merged company, which will be called Applied Biosystems, sees itself as a "world-class biotechnology tools company."
• Qualcomm lifts profit outlook. Qualcomm (QCOM +6%) raised its Q3 EPS guidance to $+0.54-0.55 from $0.50-0.52. It also sees revenue slightly higher than its previous outlook of $2.5-2.7B.
• KeyCorp slammed by investors. KeyCorp (KEY) plunged 23.7% after it said it plans to raise $1.5B in a share offering, while halving its dividend. It blames a federal tax ruling.
• Grey Wolf sticks to original plan. Grey Wolf (GW) said a recent $1.6B offer by Precision Drilling (PDS) is not superior to its pending merger with Basic Energy Services (BAS), with which it plans to proceed. The Precision bid had sent GW up 10.4% and PDS down 3.9%.
• Air to air combat. The Air Force admits it miscalculated the costs of the rivaling refueling tankers, and Boeing's (BA) proposed KC-767 indeed costs less over time than Northrop Grumman's (NOC) winning design. Boeing (BA) said it was "bolstered by new revelations" of the Air Force miscalculation, while Northrop (NOC) said the "minor errors should have no impact" on the pending ruling of Boeing's protest.
• Goodbye to the gas station. ExxonMobil (XOM) will no longer sell retail gas. It owns 2,220 of the 12,000 Exxon-branded U.S. stations, which will continue to carry its name. "I think the decision came that it's more of a headache than its worth," Oppenheimer analyst Fadel Gheit said.
• May retail sales rose 1%, better than the consensus of +0.5%. April's retail sales were revised to +0.4% from -0.2%. Morgan Stanley's closely watched GDP estimate went from negative to positive after the strong retail sales number. It now sees GDP growth of 0.5% vs. a previous -0.2%. Strong retail sales are bewildering some economists: "We doubt that the tax rebate checks had much impact," they say. One possible solution: Foreclosure money.
• Initial jobless claims jumped 25K to 384K, worse than consensus of 370K. The four-week average is 371.5K, up from 369K.
• April Business Inventories were up 0.5%, more than the +0.3% consensus. March's number was revised to +0.2% from +0.1%.
• New ETF gives frontier exposure. Claymore launched the Frontier Markets ETF (FRN), which it says is the first ETF that gives investors access to 41 "frontier" (one step below "emerging") markets.
• Tough times for airlines. US Airways (LCC) is reducing its staff by 5% (1,700). It will also reduce its Q4 mainline capacity by 6-8%, vs. a previous plan of 2-4%. For 2009, mainline capacity will fall by 7-9% from 2008. It's also returning 10 leased planes and cancelling two orders. "We must write a new playbook for running a profitable airline in this new and challenging environment," CEO Doug Parker says. United (UAL) and US Air joined American (AMR) in charging $15 for the first checked bag.
• Japan stays put on interest rates, again. The Bank of Japan kept interest rates at 0.5%, the lowest among major economies. Governor Masaaki Shirakawa said he's focusing on the risk that growth will falter, while still monitoring how price increases driven by oil and food affect inflationary expectations.

Today's Markets

• Asia: Nikkei +0.61% to 13,974. Hang Seng -1.87% to 22,592. Shanghai -3% to 2,869. BSE -0.16% to 15,225.
• Europe: London -1.02%. Paris -1.24%. Frankfurt -0.71%.
• Futures at 5:50 AM: Dow -0.3%. S&P -0.26%. Nasdaq -0.49%. Crude -0.79% to $135.64. Gold -0.68% to $866.

Take Out Chinese - Cramer's Lightning Round (6/12/08)