Thursday, May 13, 2010

Citigroup And Deutschbe Bank Probed, Mutual Fund Outflows and US Budget Deficit Soars!

On Fox Business Charlie Gasparino reports: Government Probe into Wall Street Sales Widening

  • ... Sources tell FOX Business that after the SEC initially requested information from all the firms when it began its probe last year, it came back and subpoenaed Citigroup and Deutsche Bank for additional documents, underscoring a heightened level of interest. In the case of Citigroup, the SEC has conducted depositions of senior executives there, these people tell FOX Business. Ironically, the SEC has not asked Morgan Stanley for the same type of additional information since its initial request, even as the Justice Department has begun evaluating the firm's CDO sales.

    As of today, neither Citi, Deutsche Bank nor Morgan Stanley have received so-called Wells Notices issued to either firm. A Wells Notice indicates that the commission’s enforcement staff is recommending to the full commission that the firms should be charged with civil securities fraud.

    That said, people with knowledge of the matter say the probes are ongoing.

    The SEC’s increased interest would also signal that the Justice Department’s probe of the sale of CDOs is actually wider than the two firms in the news as preliminary targets of federal prosecutors, Goldman Sachs and Morgan Stanley. The SEC regularly refers to the Justice Department cases which it considers significant.

    The wider interest by the government increases the chances that Wall Street and federal officials may ultimately reach a “global settlement” with the securities industry as it finds a pattern of allegedly improper conduct in the sale of these so-called structured products. In such a settlement, each firm will pay a fine based on the level of alleged misconduct....

Oooo... according to sources. :P However, as far as I can recall Charlie's sources had been fairly spot on.

And how about the issue of best fit news?

On WSJ I saw this news clip: ICI: Inflows To Long-Term Mutual Funds $7.85B In Latest Week

Before reading the article, ie based on the article headline, what's your assumption on what this article is about? ICI or Investment Company Institute is saying inflows to long term mutual funds was 7.85 Billion. Sounds rather positive, yes? I mean, don't you get the impression that money is flowing into mutual funds. Which is great yes?

Here is the WSJ article:

  • Long-term mutual funds had inflows for the latest week on continued strength for bond funds, although U.S. equity funds posted outflows as markets were rattled late last week on European sovereign-debt issues, according to the Investment Company Institute.

    Total estimated inflows were $7.85 billion the week ended May 5. For more than a year, the lion's share of investment in mutual funds has gone to bonds, which typically thrive in a lower interest-rate environment. Meanwhile, stock funds have failed to consistently attract new investment despite the equity market's sharp rally.

    Equity funds had outflows of about $1.25 billion in the latest week, compared with inflows of $1.88 billion a week earlier.
    U.S. equities had outflows of $2.24 billion, while $988 million was added to foreign funds.

    At the same time, bond funds took in $8.57 billion, up from $7.26 billion the previous week, said the ICI. Taxable funds had inflows of $7.76 billion, while municipal funds added $808 million.

    Investors also put $525 million into hybrid funds, compared with $952 million the previous week. Such funds can invest in both stock and fixed-income assets.

But then I remember Zero Hedge had a short piece on the mutual fund flows. Retail Investors Flee From Market Even Before Record Market Crash, YTD Domestic Flows Into Stocks Are Negative

Hmmm.. Zero Hedge is contradicting what WSJ is saying. What is happening here?

  • The weekly ICI number for long-term domestic mutual fund flows is out, and not surprisingly, retail investors were bailing out in droves from the stock market even before the massive flash crash of May 6. In fact, in the week ended May 5, retail investors had pulled a massive $2.235 billion out of the market, after the S&P had dropped a mere 5% or so from the prior week. We are positive that when the number for the current week comes out, the outflows will be stunning now that investors have no faith left in the rigged casino "capital markets." Of course, this is simple to explain: with everyone and their grandmother habituated to a market that can only go up, at the first sign of jitteriness everyone and their grandmother bails, although only the big institutions really get to exit: everyone else has to hope the SEC will not cancel their trades the next day. And now that the market has been thoroughly discredited, the primary dealers have no choice but to ramp it up on no volume yet again, in hopes of pulling in the momos and the housewives into it as usual, courtesy of the CNBC cheerleaders, just to pull the rug a few days before the next trillion dollar bail out is needed and "justified." Oh, and whoever cares, retail domestic flows into stocks year to date are negative by $1.5 billion. Tells you all you need to know about who is buying this "market" - momo emptor

So who is correct? Or whose pants is on fire? LOL!

Here is the ICI article: Long-Term Mutual Fund Flows

I will just highlight the table posted.

The WSJ just reported the numbers as it is. And yes it did mention the outflows but Tyler focused on the issue that more Americans pulled money OUT of the market.

And yeah, did you notice that less foreigners put money into the American market.

How would you want to interpret these facts?

And the American pie is getting poorer or perhaps some would say more bankrupt. Federal budget deficit hits April record

  • The federal budget deficit hit an all-time high for April as the government kept spending to aid the recovery while revenue fell sharply.

    The Treasury Department said Wednesday the April deficit soared to $82.7 billion. That was significantly higher than last year's April deficit of $20 billion and the largest imbalance for that month on record. April's record deficit was higher than it would normally be because about a third of the increase resulted from benefits for May that were paid on the last day in April, analysts note. That was because May 1 fell on a Saturday.

    The government normally runs surpluses in April as millions of taxpayers file their income tax returns. However, income tax payments were down this April, reflecting the impact of the recession which has pushed millions of people out of work.

    Total revenues for April were down 7.9 percent from a year ago...

Less Americans filed income tax returns. Made sense cos hey more and more people are unemployed. So what do you expect? But I am in awed. Last April deficit was 20 Billion. This April deficit is 82.7 Billion. Holy moly!