Weekend Update – July 17, 2010

Baltic Dry Index. 1720 +20 (Down 59% since May 26, 2010.)

LIR Gold Target by 2019: $3,000.

"I like pigs. Dogs look up to us. Cats look down on us. Pigs treat us as equals."

Winston Churchill.

This weekend we take the opportunity to cover the under reported weather related crop impact across Eur-Asia, from drought and flooding. This year, Eur-Asia’s weather pattern has been disrupted on a massive scale. The biggest impact is likely to be with wheat, since Russia, the Ukraine and Kazakhstan are all large producers and exporters of wheat, but from the EU all the way across to China this year’s growing conditions has been a story of not enough rain, much of the EU, Russia, Kazakhstan, northern China, to way too much rain, parts of the EU, the Ukraine, southern China. Yesterday we covered the prospects for a rice crop failure in the Mekong delta of Vietnam, the second largest exporter of rice. Today we cover the very ugly picture that’s developed in wheat production. Completely off the radar for most people, diverted by World Cup football, the arriving age of austerity, BP’s Gulf of Mexico tragedy, and the political football of Libya now intruding into the US mid-term elections, a bad crop year in Eur-Asia has the potential to become the year’s biggest story of all. It now all depends just how bad “bad” becomes.

We open with an already rain soaked southern China getting hit with typhoon Conson. This story has the potential to become the disaster story of the next week, especially as BP does now finally seem to have brought their Macondo oil well under control. If really so, BP’s team can now proceed with deliberation and caution in attempting the final phase of a permanent fix via the first relief well. In southern China, it’s now all down to how much more rain falls in the next few days.

146 dead in China rainstorms and floods: state media

(AFP) – 13 hours ago

BEIJING — Torrential rain and severe flooding have left at least 146 people dead and 40 missing in ten Chinese provinces, mostly along the Yangtze River following recent storms, state media said Friday.

The Xinhua news agency said that as of 4:00pm (0800 GMT) Friday, rain-triggered floods had affected some 38.2 million people and 1.3 million had been evacuated.

The latest toll is near 40 percent increase on that reported by Xinhua Tuesday following rains along the Yangtze River, China's longest, over the past 10 days.

Heavy downpours in central and eastern China have caused water levels in major lakes and some river tributaries to rise alarmingly, state media has said.

A lead and zinc mine in eastern China caved in due to heavy rain and was threatening to contaminate a popular lake on Friday, Xinhua said.

A river feeding Zhejiang's Qiandao Lake -- one of the province's major tourist attractions -- has turned grey after slag from the collapsed mine leaked out, the report said.

Authorities are also bracing for damage caused by Typhoon Conson, which killed 39 people and left 84 missing in the Philippines.

It made landfall on Hainan island off southern China late Friday, packing winds of up to 126 kilometres an hour (78 miles an hour), Xinhua said, quoting the disaster prevention office of Sanya, a tourist resort.

-----The typhoon is expected to hover in the island for about nine hours before entering Beibu Bay on Saturday morning.

The typhoon could worsen problems along the Yangtze River basin, which acts as an unofficial dividing line between the north and south of the country and has seen rivers and lakes swelled by days of rainfall.

The head of the flood control office at the Yangtze River Water Resources Commission told AFP on Thursday that if the region continued to be drenched, China could experience the worst floods in 12 years.

-----Meteorological authorities have warned that still more heavy rain was expected in flood-hit regions in coming days.

Rains and flooding have caused economic losses totalling 116 billion yuan (17 billion dollars) since the start of the year, state television said.

China's Ministry of Civil Affairs and Ministry of Finance on Friday jointly allocated 370 million yuan as disaster relief to the five provinces of Anhui, Hubei, Hunan, Guizhou and Yunnan, as well as Chongqing Municipality.

http://www.google.com/hostednews/afp/article/ALeqM5g2XbWWJGUzY04aZAuvdK8i2Qpn-A

Elsewhere in Eur-Asia, it’s heat and a lack of rain that’s hammering Russia and Kazakhstan.

Russia swelters amid drownings and drought

Jul 16 07:39 AM US/Eastern

Russians sweltered Friday in the hottest weather since the Stalin era as droughts caused crop devastation across the country and hundreds drowned in bathing accidents often influenced by alcohol.

Friday was expected to break a record in Moscow, topping 33 degrees Celsius, the highest temperature that day since 1938, according to the state weather centre.

At the weekend, the temperature was forecast by the state weather centre to hit 37 degrees in central Russia.

An emergency drought situation has been declared in 19 of Russia's 83 regions with crops dying on an estimated 9.6 million hectares of fields.

The drought-struck areas were suffering "colossal destruction," Agriculture Minister Yelena Skrynnik said Tuesday at a meeting with President Dmitry Medvedev.

The coldest place on earth in winter, Oimyakon in the Sakha region, was forecast to swelter at 32 degrees centigrade on Friday, the ITAR-TASS news agency reported.

----The Kremlin cancelled a weekly ceremonial performance by mounted troops from the presidential regiment, due to fears that the troops and horses would suffer in the heat.

Customers have flocked to buy air conditioners and fans to beat the heat in airless concrete office blocks and apartment buildings.

"The yearly stock of air conditioning systems and fans has already sold out, and we had to order extra," said Nadezhda Kiselyova, a spokeswoman for electronics chain M-Video.

http://www.breitbart.com/article.php?id=CNG.451d75f4046267a2e4f0877759e03979.541&show_article=1

Drought-hit Kazakh grain crop to fall by up to 30%

Kazakhstan has confirmed suspicions that, like neighbouring Russia, it is suffering significant crop damage to drought, forecasting a slump of up to 30% in grain production. The smallest member of the Black Sea agricultural triumvirate will harvest 14.5m-15.5m tonnes of grain this year, Arman Yevniyev, Kazakhstan's deputy agriculture minister, said. The sharp fall from last year's 20.8m-tonne crop reflects in part lower sowings of grains, which some farmers have turned away from in favour of oilseeds, but also the dry weather which is devastating Russian crops. "There was drought in some regions and conditions were difficult there," Mr Yevniyev said. Below forecasts He added that "the general state of the crop is satisfactory" with at most 10% in poor condition. Nonetheless, the decline forecast for Kazakhstan's harvest would be even more severe than that expected Russia, which analysts currently see as suffering at most a 17% slide in grains production. Indeed, Mr Yevniyev's data represents a huge departure from US Department of Agriculture estimates, regarded as the global benchmark.

http://www.agrimoney.com/news/drought-hit-kazakh-grain-crop-to-fall-by-up-to-30percent--1954.html

But in the Ukraine, too much rain is the problem. The breadbasket of Europe grows a drought tolerant variety of wheat, too much rain isn’t helpful nor often the problem. Below the Ukraine, latest grain news from the EU.

Ukraine confirms weaker hopes for grain harvest 09:59 UK, 15th July 2010

Ukraine's government has confirmed reports of weaker hopes for its grains crop, slicing its harvest forecast by a further 3m tonnes, as producers also lowered their sights. The farm ministry, making its second downward crop revision in three weeks, cut its harvest estimate to 42m tonnes from 45m-45.5m tonnes. The Ukrainian Grain Confederation, or UAK, an association of producers and traders, also unveiled a cut in its forecast, of 2m-3m tonnes to 44m-45m tonnes. The downgrade is the latest in a series for major grain producers, with European Union hopes also cut on Thursday by high-profile analysis group Strategie Grains However, unlike its neighbours, Kazakhstan and Russia, Ukraine has suffered from too much rain rather than too little, affecting grain quality as well as yields. 'Serious losses' Gluten, the protein key to food uses of wheat such as breadmaking, was "being washed out even as you look", the ministry said. The comments follow a warning from Viktor Slauta, the deputy prime minister with agricultural oversight, who told a government meeting that Crimea, in the south of Ukraine, had suffered 22 successive days of rain.

http://www.agrimoney.com/news/ukraine-confirms-weaker-hopes-for-grain-harvest--1984.html

Wheat hits fresh highs, after cut to EU crop hopes 19:04 UK, 15th July 2010
Wheat prices soared 6% in London and Paris to their highest for nearly two years after Strategie Grains said that poor weather had cost European Union farmers their hopes of raising soft wheat production this year. The influential analysis group slashed by 3.6m tonnes to 129.5m tonnes its forecast for the crop, leaving it below last year's 129.8m-tonne result despite an increase in sowings.

Many analysts had hoped that the EU would at least beat last year's result, thanks to greater plantings. The US Department of Agriculture last week pegged the region's overall wheat harvest coming in more than 3m tonnes high than 2009's.

The revision, the latest in a series of downgrades to crops from Canada to Western Australia, came as Ukraine confirmed it was also cutting estimates for its harvest again.

http://www.agrimoney.com/news/wheat-hits-fresh-highs-after-cut-to-eu-crop-hopes--1983.html

We will continue following this story with interest since it’s now getting too late in the year for a change in the weather to alter Eur-Asia’s outcome positively. Unfortunately that isn’t true for a continuing negative crop impact, especially in rain hit southern China. If as seems likely, we are/have entered a new solar cycle period of a couple of decades of global cooling, this is the worst possible news for global inventories. Ideally we need bumper crops and a strong global build up of grain inventory to record levels. 2010 is shaping up to be a year of inventory decline. A high risk trade here is to go long out of the money call options for year end. The opposite seasonal trade to a normal crop year, where the northern hemisphere harvest pressure usually delivers lower prices in the fourth quarter of each year.

We end with news that’s sure to get spun wildly by the IPCC and the man made global warming nutters.

World's hottest year on record expected

The world is on course to record the hottest year on record, threatening droughts worldwide, forecasters have said

Published: 11:45PM BST 16 Jul 2010

For the first six months of the year, 2010 has been warmer than the first half of 1998, the previous record holder, by 0.03 degree Fahrenheit, said Jay Lawrimore, chief of climate analysis at the federal National Climatic Data Center.

A period of a El Nino weather pattern is being blamed for the hot temperatures globally.

"We had an El Nino episode in the early part of the year that's now faded but that has contributed to the warmth not only in equatorial Pacific but also contributed to anomalously warm global temperatures as well," Mr Lawrimore said.

Abnormally warm temperatures have been registered in large parts of Canada, Africa, tropical oceans and parts of the Middle East.

Northern Thailand is struggling through the worst drought in 20 years, while Israel is in the middle of the longest and most severe drought since 1920s.

In Britain, this year has been the driest since 1929.

Also, Arctic sea ice has melted to its thinnest state in June.

-----"This year the fact that the El Nino episode has ended and is likely to transition into La Nina, which has a cooling influence on the global average temperature, it's possible that we will not end up with the warmest year as a whole," Mr Lawrimore said.

http://www.telegraph.co.uk/topics/weather/7895681/Worlds-hottest-year-on-record-expected.html

Cue pictures of drowning polar bears and starving Canadians unable to club baby seals on missing ice. No chance that this is related?

A Puzzling Collapse of Earth's Upper Atmosphere
July 15, 2010: NASA-funded researchers are monitoring a big event in our planet's atmosphere. High above Earth's surface where the atmosphere meets space, a rarefied layer of gas called "the thermosphere" recently collapsed and now is rebounding again.
"This is the biggest contraction of the thermosphere in at least 43 years," says John Emmert of the Naval Research Lab, lead author of a paper announcing the finding in the June 19th issue of the Geophysical Research Letters (GRL). "It's a Space Age record."

The collapse happened during the deep solar minimum of 2008-2009—a fact which comes as little surprise to researchers. The thermosphere always cools and contracts when solar activity is low. In this case, however, the magnitude of the collapse was two to three times greater than low solar activity could explain.

"Something is going on that we do not understand," says Emmert.

The thermosphere ranges in altitude from 90 km to 600+ km. It is a realm of meteors, auroras and satellites, which skim through the thermosphere as they circle Earth. It is also where solar radiation makes first contact with our planet. The thermosphere intercepts extreme ultraviolet (EUV) photons from the sun before they can reach the ground. When solar activity is high, solar EUV warms the thermosphere, causing it to puff up like a marshmallow held over a camp fire. (This heating can raise temperatures as high as 1400 K—hence the name thermosphere.) When solar activity is low, the opposite happens.

Lately, solar activity has been very low. In 2008 and 2009, the sun plunged into a century-class solar minimum. Sunspots were scarce, solar flares almost non-existent, and solar EUV radiation was at a low ebb. Researchers immediately turned their attention to the thermosphere to see what would happen.
More + diagrams
http://science.nasa.gov/science-news/science-at-nasa/2010/15jul_thermosphere/

Have a great weekend everyone.

"Man is the only animal that can remain on friendly terms with the victims he intends to eat until he eats them."

Samuel Butler.

GI.

Technorati Tags: Eur-Asian grain problems,drought,floods,Chin,Ukraine,Russia,Kazakhstan,hottest year,missing sunspots,global cooling

The Double Dip?

Baltic Dry Index. 1700 -09

LIR Gold Target by 2019: $3,000.

In central banking as in diplomacy, style, conservative tailoring, and an easy association with the affluent count greatly and results far much less.

J. K. Galbraith

Are we on the cusp of a new recession? From London, it has looked for some time that we probably are. Other than resurgent stock markets, where program trading and manipulation are the only games in town, there’s been almost nothing positive to write about for some time. The BDI has fallen 60% since May 26^th, never a sign of health in global trade. Now the Fed seems to be acknowledging the same thing. Below, The Telegraph covers the surprisingly downbeat Fed.

You will find that the State is the kind of organization which, though it does big things badly, does small things badly, too.

J. K. Galbraith

Fed's volte face sends the dollar tumbling

Rarely before have a few coded words in the minutes of the US Federal Reserve caused such an upheaval in the global currency system, or such a sudden flight from the dollar.

By Ambrose Evans-Pritchard, International Business Editor

Published: 8:52PM BST 15 Jul 2010

The euro rocketed to a two-month high of $1.29 and sterling jumped two cents to almost $1.54 after the Fed confessed that the US economy may not recover for five or six years. Far from winding down emergency stimulus, the bank may need a fresh blast of bond purchases or quantitative easing.

Usually the dollar serves as a safe haven whenever the world takes fright, and there was plenty of sobering news from China and other quarters on Thursday. Not this time. The US itself has become the problem.

"The worm is turning," said David Bloom, currency chief at HSBC. "We're in a world of rotating sovereign crises. The market seems to become obsessed with one idea at a time, then violently swings towards another. People thought the euro would break-up. Now we're moving into a new phase because we're hearing alarm bells of a US double dip."

Mr Bloom said a deep change is under way in investor psychology as funds and central banks respond to the blizzard of shocking US data and again focus on the fragility of an economy where public debt is surging towards 100pc of GDP, not helped by the malaise enveloping the Obama White House. "The Europeans have aired their dirty debt in public and taken some measures to address it, whilst the US has not," he said.

The Fed minutes warned of "significant downside risks" and a possible slide into deflation, an admission that zero interest rates, $1.75 trillion of QE, and a fiscal deficit above 10pc of GDP have so far failed to lift the economy out of a structural slump.

"The Committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably," it said. The economy might not regain its "longer-run path" until 2016.

"The Fed is throwing in the towel," said Gabriel Stein, of Lombard Street Research. "They are preparing to start QE again. This was predictable because the M3 broad money supply has been contracting for months."

The Fed minutes amount to a policy thunderbolt, evidence of how quickly the recovery has lost steam. Just weeks ago the Fed was mapping out withdrawal of stimulus.

Goldman Sachs said it expects the euro to rise to $1.35 by the end of the year. The yen will appreciate to ¥83, through the pain barrier for most of Japan's big exporters. The new twist is that SAFE, China's $2.4 trillion fund, has begun buying record amounts of Japanese bonds, a shift in reserve allocation away from the dollar.

The signs of a deep and sudden slowdown in the US are becoming ever clearer as the "sugar rush" from the Obama fiscal stimulus wears off and the inventory boost fades. California, Illinois and other states are cutting spending, tightening US fiscal policy by 0.8pc of GDP.

Thursday's plunge in the Philadelphia Fed's July index of new manufacturing orders to –4.3 suggests that the economy may have buckled abruptly, as it did in mid-2008. The Economic Cycle Research Institute's ECRI leading indicator has tumbled, reaching –8.3pc last week. This points to a sharp slowdown or recession within three months.

http://www.telegraph.co.uk/finance/currency/7893238/Feds-volte-face-sends-the-dollar-tumbling.html

With the Fed apparently about to restart quantitative easing, aka monetization, the dollar as a long term store of value is compromised. In fact if a double dip recession does hit in the US, the Fed will go out to try to generate deliberate inflation in the economy to prevent deflation turning the double dip recession into the first US depression since the 1930s. This has forced money managers to start the logical process of trying to protect against dollar value destruction. Below the Houston Chronicle covers one attempt at protecting the long term value of funds. My guess is that this is only the start of a multi year process.

"When paper money systems begin to crack at the seams, the run to gold could be explosive."

Harry Browne

Higher education fund buys gold over economic worries

By R.G. RATCLIFFE and JEANNIE KEVER Copyright 2010 Houston Chronicle July 14, 2010, 9:40PM

AUSTIN — Fearing unstable international financial markets and the possibility of high inflation, Texas' higher education investment managers have bought more than $500 million in gold.

The gold purchases represent only 3 percent of the University of Texas Investment Management Co.'s $22.3 billion in investment funds, but it indicates how deeply the fund managers are concerned about the global financial future.

With the state's endowment funds designed to generate a 5.1 percent distribution each year to the University of Texas and Texas A&M University, it is rare for the investment managers to put large sums of money into a commodity whose value usually only grows through inflation.

"Recently, we've added 3 percent, 3 percent of our portfolio, into gold as a protection against inflation, but even more as a lack of confidence in financial markets due to extraordinary government fiscal and monetary stimulus," UTIMCO CEO Bruce Zimmerman told the University of Texas board of regents Wednesday. "I wish I could tell you the future looked rosy. Unfortunately, that's not our view. At best, we believe the future is uncertain."

Other executives suggested the endowments have begun to recover from the staggering losses of 2008 and 2009.

http://www.chron.com/disp/story.mpl/business/7108909.html

The article didn’t cover the specifics of how UTIMCO made their gold purchase. I can only hope that they arranged to take allocated physical delivery in a secure international vault, at an institution that’s not hopelessly short paper gold. As the fiat currency system unravels in a world of casino capitalism and unrestrained derivatives gambling, I fully expect to see a Comex default of the gold and silver contracts, and to hear of serious problems at some of the precious metals ETFs and their custodians. I have serious doubts that all of the custodian’s metals really exist, or haven’t been pledged to more than one entity.

We end for the day watching weather events in S.E. Asia, where Vietnam’s rice crop is in danger of failing. As the second largest rice exporter in the world, any failure there will have a big impact on rice prices and through them much of Asia’s quality of life for those who haven’t yet made it up to the comfortable middle class. As is now usual in our dumbed down 21^st century world, a good article on a seriously disturbing problem gets the full global warming treatment by the “Staff Writers.” Below that, Accuweather covers the latest typhoon heading into already saturated China, that didn’t bring much in the way of relief to Vietnam.

Salty water, parched earth: Vietnam's Mekong paddies dry up

by Staff Writers
Que Dien, Vietnam (AFP) July 14, 2010
The rivers that should nourish his thirsty rice paddies are too salty, and the rains are late this year. Dang Roi does not know if he will be able to salvage anything from this spring's crop.

Vietnam is the world's second-biggest rice exporter and the Mekong Delta, where Roi farms, accounts for more than half of its production.

But Roi's paddy fields in Ben Tre province are burning up during a drought which meteorologists say is the worst in decades.

The dry season should have ended already, but in the yard of Roi's house in Que Dien commune, barrels that collect rainwater for his family's cooking and washing show the desperate situation. They are half-full, or empty.

Experts say Vietnam is one of the countries most threatened by climate change, whose effects are seen in worsening drought, floods, typhoons, exaggerated tides, and rising sea levels.

The country is planning for a one-metre (three feet) rise in sea levels by 2100, which would flood about 31,000 square kilometres (12,400 square miles) of land -- an area about the size of Belgium -- unless systems such as dykes are strengthened, said a UN discussion paper released last year.

It said the threat of floods is greatest in the Mekong Delta, where 17 million people live.

-------Over the past 50 years the sea level has already risen by 20 centimetres (eight inches) along Vietnam's coast, according to the increasingly worried communist government.

While delta farmers cope with drought, they are also challenged by sea water intrusion, which experts also link to climate change.

There is little water in the rivers near Roi's fields "and it's salty so we can't pump it" for irrigation, he says.

Recalling easier times on his 1.2 hectares (three acres), Roi says, "The rice fields weren't dying like this."

The Vietnamese government emphasises the role of climate change in disrupting its agricultural environment, but experts do not rule out an effect from dams upstream in China. That impact could be worsened by the opening of more dams further south in Laos and Cambodia, they say.

"The Chinese dams have made the system fragile, but the impact of the downstream dams will be cumulative," said Marc Goichot, of the WWF.

------China has eight planned or existing dams on the Mekong River, but rejects activists' criticism that the hydropower dams contribute to low water levels downstream.

There are proposals for another twelve dams in the lower Mekong countries.

Vo Tong Xuan, a leading Vietnamese rice expert, said the flow of the Mekong River -- whose long journey ends at the delta -- is "extremely reduced" this year.

He is concerned about the impact of Chinese dams, but also blames Vietnam's increasingly intensive methods of rice growing.

As the delta's population has expanded, farmers have gone from planting one to two and sometimes three rice crops

http://www.seeddaily.com/reports/Salty_water_parched_earth_Vietnams_Mekong_paddies_dry_up_999.html

Conson Aims for South China after Hammering Manila

Jul 15, 2010; 6:45 PM ET

Conson, having dealt Manila a drubbing, will now aim for a late-week landfall in south China.

As of Thursday evening, EDT time, the center of Conson was located over the South China Sea about 200 miles southeast of Hainan Dao, China.

Conson is currently a typhoon with 80 mph winds and stronger gusts. It's possible the storm will strengthen slightly over the next 12 hours.

Conson is predicted to make landfall on Hainan Dao by Friday night, local time. A landfall here would bring flooding rain and damaging winds.

The cyclone had weakened into a tropical storm while moving over southern Luzon, the main island of the Philippines. As of Thursday afternoon, the maximum sustained winds were close to 65 mph with gusts to 80 mph.

---- AccuWeather.com meteorologists say that Conson may contribute, at least indirectly, to further rains and ongoing flooding in the Yangtze River basin of central and eastern China. Here, in the provinces of Anhui, Jiangxi and Hunan, rainfall has already been 100 to more than 300 percent of the normal July amount leading to severe flooding.

The flooded area will continue to have locally excessive rain for at least the next week with rainfall next week potentially getting a boost from dissipating Tropical Storm Conson.

http://www.accuweather.com/blogs/news/story/33963/conson_may_unleash_disastrous.asp

"Gold would have value if for no other reason than that it enables a citizen to fashion his financial escape from the state."

William F. Rickenbacker

At the Comex silver depositories Thursday, final figures were: Registered 52.47 Moz, Eligible 59.34 Moz, Total 111.81 Moz.

+++++

Crooks and Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

The cost of God’s work, $550 million. Barely the price of a top squids annual bonus. Today, it’s the Great Vampire Squid again, paying a mere $550 million to make America’s out of their league SEC go away. The cost of “God’s work?” A puny 14 days worth of profits, and less that the stock price surged on news of the settlement. It didn’t take Ebenezer Squid long with his Abacus to see that at 550 million it was easily the bargain of the new century. Besides, what’s 550 million when it ends all the paranoia among friends? Maybe now the top squids can stop wearing wires and trying to record each other. Below, the Journal covers the Squids giving back what for them amounts to just another cost of business. One tiny unseemly detail that was buried in the minutiae, the great vampire squid seems to have to help the SEC serve up Frenchman Fabrice Tourre’s head on a plate. One other minor detail, the SEC apparently gives up pursuing Goldman Sachs on “other mortgage related CDOs” according to MarketWatch. Bernie Madoff must be wondering where he went wrong. Below the Journal coverage, did someone at Goldie or the SEC game the settlement’s announcement near the close? The Fed’s NY fix-it desk perhaps? They wouldn’t do that, would they?

"I'm doing God's Work."

Lloyd Blankfein. CEO Goldman Sachs. November 8 2009.

JULY 16, 2010

Goldman Settles Its Battle With SEC

$550 Million Deal Ends Showdown That Shook Street

In one of the largest penalties in Wall Street history, Goldman Sachs Group Inc. agreed to pay $550 million to settle civil charges that it duped clients by selling mortgage securities that were secretly designed by a hedge-fund firm to cash in on the housing market's collapse.

But the agreement with the Securities and Exchange Commission ends a showdown that had deeply shaken America's most powerful financial firm at a cost that outside observers deemed a bargain.

Goldman conceded it made "a mistake" by not disclosing the role of Paulson & Co. to investors for a deal dubbed Abacus 2007-AC1. The firm vowed to toughen oversight of mortgage securities, certain marketing materials and employees who create or pitch such securities.

Criminal prosecutors still are looking into whether Goldman or its employees committed securities fraud in connection with its mortgage trading, according to people familiar with the matter. Goldman hasn't commented on the criminal probe.

Yet Goldman walked away with several victories that raise questions about the strength of the SEC's case. The company wasn't forced to sacrifice any top executives, including Chief Executive Lloyd C. Blankfein, as some executives had feared. The changes it agreed to won't weaken its profits or standing as Wall Street's mightiest firm. The record-setting penalty is equivalent to just 14 days of profits at Goldman in the first quarter.

"That is a steal," said Michael Driscoll, a visiting professor at Adelphi University and a senior managing director at firm Bear Stearns Cos. before that firm collapsed in 2007. Analysts had expected Goldman to pay at least $1 billion as part of the deal.

Goldman shares surged late in the day on expectation of a pact, and continued to rally in after-hours trading. The stock was up $6.16, or 4.4% to $145.22 in New York Stock Exchange trading in regular hours, and then another $7.13, or 4.9%, to $152.35 after hours.

The firm's traders, investment bankers and other employees expressed relief that the three-month legal ordeal, which erased nearly $20 billion of the company's stock-market value, was over. Executives believe the $550 million payment is tiny compared with the business Goldman could have lost if the case dragged on. Goldman brass told managers to make sure the reaction inside the firm was subdued, fearing that cheering or other celebration would further taint the firm's reputation.

The settlement must be approved by U.S. District Judge Barbara S. Jones in New York.

The SEC said the Goldman settlement represents the largest penalty it has ever extracted from a Wall Street firm. In 1988, Drexel Burnham Lambert Inc. agreed to pay $650 million in fines and restitution, but about half the total went to satisfy civil claims of investors and clients defrauded by Drexel.

----The SEC said Goldman agreed to cooperate in the investigation of Fabrice Tourre, the Goldman trader accused by the SEC of being "principally responsible" for piecing together the bonds and touting them to investors.

Mr. Tourre faces a Monday deadline to respond to the allegations by the SEC in its April lawsuit or seek an extension. Mr. Tourre, who still works at Goldman but is on paid leave, plans to file a response Monday and continue trying to clear his name, according to a person familiar with the matter.

----The settlement includes a $535 million civil penalty and the handover of $15 million in profits Goldman made on the Abacus deal. Goldman will pay $250 million to investors in the Abacus deal, including $150 million to IKB Deutsche Industriebank AG, a German bank that invested the same amount in a slice of the mortgage securities. The U.S. government gets the remaining $300 million.

http://online.wsj.com/article/SB10001424052748704682604575369382547871788.html?mod=WSJEUROPE_hps_LEFTTopWhatNews

Thursday, July 15, 2010

Is the SEC Going to Investigate Insider Trading on Goldman Settlement News?

Goldman’s stock was trading at $140.15 at 3:26 PM today.

It moved more than 4 points in the next ten minutes.

I got wind that the settlement announcement was set for 4:45 PM at around 4:00 PM. I pinged a journalist at a major financial media outlet to find out whether there had been an announcement to the media earlier. His impression was also that the news had hit the wires at 4:00 PM (thus presumably intended for the close of trading).

So….it’s insider trading only if you are an insider…but who let the cat out of the bag at 3:30 PM, and were they an insider? This sort of thing happens all the time, but it’s particularly brazen when it involves and SEC announcement. But how likely is it that the SEC will turn over this rock to see what crawls out from under it?

http://www.nakedcapitalism.com/2010/07/is-the-sec-going-to-investigate-insider-trading-on-goldman-settlement-news.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

“I am not a crook.”

Ebenezer Squid. With apologies to Richard Nixon.

Another weekend and the British Open battles the winds, rain and sun of the links of St Andrews. In the Gulf of Mexico, BP finally seems to be close to a permanent solution to its Macondo blowout. The next 36 hours should tell whether the well’s integrity below the blowout preventer is still sound. More at the weekend and hopefully all good news. Have a great weekend everyone.

"In economics, hope and faith coexist with great scientific pretension."

J. K. Galbraith.

Technorati Tags: Federal Reserve,QE,BDI collapse,fiat currency default,gold and silver.,Vietnam drought,rice,Goldman Sachs,great vampire squids,missing sunspots,global cooling