Financial thoughts

Gold fell Thursday, after climbing to a record high overnight, as the dollar rose against rival currencies and stock prices fell.

December gold slipped $8.00 and settled at $1,106.60 an ounce after climbing to a record $1,123.40 overnight. Gold closed at an all-time high of $1,114.60 an ounce Wednesday.

The retreat came as the dollar recovered from earlier losses amid ongoing concerns about the U.S. economy and speculation that overseas central banks could move to prop-up the beleaguered greenback.

The dollar index, which gauges the currency’s value against a basket of rivals, was up 0.6% to 75.60. Despite the recovery, however, the index remains near a 15-month low.

Gold, which has gained about 6% this month, has been supported recently by concerns about the weak dollar.

A softer greenback makes gold, which is priced in dollars around the world, cheaper for buyers using stronger currencies. The weak dollar has also raised expectations that overseas central banks will move to increase their gold holdings as an alternative to the U payday loan.S. currency.

But the dollar’s strength on Thursday, along with a selloff in the stock market, weighed on the precious metal, said Adam Klopfenstein, senior market strategist at commodities brokerage firm Lind-Waldock.

"The market is failing to find a bullish theme for the day," he said. "I expect gold to maintain negative posture for the rest of the afternoon, but I don’t expect a major selloff given the magnitude of this week’s move."

Gold has been on a tear since prices rose firmly above $1,000.00 an ounce last month. Analysts say the metal’s recent strength has attracted many short-term market participants who trade largely based on momentum.

Given the bleak outlook for the U.S. dollar, however, many analysts say gold will continue to rise into next year.  

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Veteran banking analyst Richard Bove said shares of Bank of New York Mellon Corp should be selling at a multiple double its current valuation based on its growth prospects, and strongly recommended buying the stock.

“Bank of New York is one of the most compelling stories in the financial sector and one of the worst performing stocks. This dichotomy creates an unusually attractive opportunity for capital gains,” the Rochdale Securities analyst said in a note to clients.

Bank of New York, the world’s largest trust bank, posted a third-quarter net loss last month after a charge to restructure its investment portfolio, but earnings excluding one-time items topped expectations.

“There is something wrong with the whole concept of how people are investing in bank stocks for this stock to stay where it is, and those other (bank) stocks to soar,” Bove told Reuters by phone.

“I think at some point investors are going to begin to recognize that all these bank stocks that moved up lately don’t have any earnings. This stock is not moving up and it has significant amount of earnings.”

Money supply to the bank continues to expand and is converted into new securities, leading to an expansion of the markets the company serves, Bove said quick cash advance.

Bove kept unchanged his price target of $42 and “buy” rating on the stock.

Bank of New York shares closed at $27.52 Wednesday on the New York Stock Exchange.

Contrary to other U.S. banks, Bank of New York has a very good chance of increasing its dividend in the next 12 months and it also does not have any concerns about loan losses as it makes only a limited number of loans, Bove said.

“This company is showing real profits, the average bank is showing losses… this company has a secular growth potential of 10-12 pct in earnings… while the average bank has a 4 percent secular growth potential.”

In August, the bank paid $136 million to redeem U.S. Treasury warrants to buy back its stock, and in June it bought back $3 billion of preferred shares it had issued to the government.

(Reporting by Anurag Kotoky in Bangalore; Editing by Anthony Kurian)

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The U.S. economy has entered a recovery and policymakers should now focus on ensuring it is a durable one, a top Federal Reserve official said on Tuesday.

“Now that growth has resumed, the overall objective of economic policy should be to bring about a durable recovery and an environment that reduces unemployment as quickly as possible while containing inflationary pressures,” Atlanta Federal Reserve Bank President Dennis Lockhart said.

Lockhart, a voter on the Fed’s policy-setting Federal Open Market Committee, said achieving this objective will “necessarily involve judicious removal of government supports and the normalization of monetary policy.”

Lockhart, speaking a week after the U.S. central bank reiterated its pledge to keep interest rates ultra-low for an extended period, struck a cautious note on the recovery. The Fed cut overnight interest rates close to zero in December and has held them steady since.

There are a number of “sobering aspects” of the economic picture, he told a conference sponsored by the Urban Land Institute. However, he said it was possible to envision scenarios in which the Fed had to raise interest rates even with unemployment high.

The U.S. economy grew at a 3.5 percent annual rate in the third quarter, snapping four down quarters and likely ending the recession that began in December 2007.

But labor market conditions remain dismal. The unemployment rate surged to a 26-1/2 year high of 10 bad credit payday loans.2 percent in October, and economists expect it to hit 10.5 percent in mid-2010 before subsiding.

“At this juncture, it’s hard to be encouraged about a fast rebound in job growth,” Lockhart said.

The Atlanta Fed chief said he expects the pace of growth to be “relatively subdued” through the medium-term. He cautioned that while there are signs of improvement, data has been “quite mixed” and the recovery has been supported by temporary government programs.

Lockhart also said policymakers should take into account trends in the ailing commercial real estate sector, as its problems could suppress the pace of the recovery.

A worry, he said, is the link between bank lending, small business employment and commercial real estate values.

However, he said he does not think commercial real estate’s woes pose a broad risk to the financial system.

“As the recovery develops, the (commercial real estate) problem will be a headwind, but not a show stopper, in my view,” he said.

In answer to a question, Lockhart said flat or falling consumer incomes also pose a risk to the residential real estate sector, which has appeared to be stabilizing.

“You could see the development of more stressed personal mortgages,” he said.

(Editing by Dan Grebler)

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Wall Street firms are in a quandary about getting involved with a planned public offering of Russian aluminum producer UC RUSAL because its founder has been barred from getting a U.S. visa on account of allegations that he is connected to organized crime, the Wall Street Journal reported on Saturday.

Citing sources familiar with the matter, the newspaper reported that Goldman Sachs Group Inc had looked likely to take one of the top two underwriting slots before stepping away from the deal in recent weeks.

Billionaire Oleg Deripaska has denied links to organized crime and has never been charged with a crime, according to the report.

The sources said that Goldman had been unable to get comfortable with risks linked to the deal in the accelerated time frame, according to the report.

On Wednesday, sources with direct knowledge of the deal told Reuters that RUSAL, the world’s largest aluminum producer, would seek Hong Kong listing committee approval soon, hoping to raise around $2 billion through a dual listing. The sources said RUSAL also planned to list in Euronext Paris.

They said the primary listing would occur in Hong Kong, the secondary listing in Paris.

RUSAL hopes to begin trading in December, though the IPO is contingent on progress with its debt restructuring, set to conclude by mid-November, the sources said.

The Wall Street Journal reported on Saturday that with the IPO looming, Deripaska had traveled to the U.S. twice in the past few months using entry permits arranged by the Federal Bureau of Investigation, with whom he met during his visits. The newspaper cited people familiar with the trips and said the FBI had declined to comment.

Deripaska also met with several Wall Street executives, including Lloyd Blankfein, chief executive of Goldman Sachs, and Morgan Stanley’s chief executive John Mack, the report said, citing people familiar with the meetings.

The report quoted one person as saying that Wall Street firms were “just not comfortable sponsoring Deripaska.”

Bank of America Corp’s Bank of America Merrill Lynch now plans to help underwrite the deal after an internal debate, the report said, citing sources familiar with the matter.

It said that Deripaska had confirmed, through a spokesman, the recent U.S. trips, but declined to comment on his visa status other than to say that he faces no limits on travel to any country. The newspaper cited a State Department official as saying that Deripaska does not hold a U.S. visa.

RUSAL is urgently trying to reach a deal with its foreign creditors on $7.3 billion of debt. Senior bankers told Reuters last month that RUSAL had to reach agreement with its foreign creditors by mid-November if the company’s IPO was to proceed.

The Wall Street Journal reported that the offering’s two lead managers are Credit Suisse Group and BNP Paribas SA, adding that BNP had stepped into the slot Goldman had been expected to fill.

(Reporting by Kyle Peterson; Editing by Toni Reinhold)

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In closing arguments in the trial of the first high-profile Wall Streeters on fraud charges stemming from the financial crisis, a U.S. prosecutor said two hedge fund managers told “black and white lies,” but a defense lawyer attacked the government for “misleading” the jury.

U.S. prosecutor Ilene Jaroslaw said on Thursday former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin lied to investors in the early months of 2007 about the health of their funds even though they were seeing some of the worst market conditions ever.

“This case is not about hedge fund strategy or what happened in the market in 2007,” Jaroslaw told a Brooklyn, New York, federal court jury.

“What it is about, is the two defendants lied to their investors. It’s not about the future … but a case of black and white lies,” she told the jury, which is expected to begin deliberations on Monday, nearly a month after the trial began on October 13.

Cioffi, 53 and Tannin, 48, have denied charges of securities fraud, wire fraud and conspiracy in a June 2008 indictment that made them the first high-profile Wall Streeters to be criminally charged in a case stemming from subprime mortgage-backed securities that fueled the market meltdown.

When Cioffi’s main lawyer, Dane Butswinkas, took his turn summarizing the evidence to the jury, he said prosecutors had given jurors a “misimpression” and “misleading sound bites” from emails and had implied conspiracy where there was none.

“If you look at some of the tactics I just showed you, do they make you pause?” Butswinkas asked the jury. “If they would, then that’s reasonable doubt.”

The 12 jurors were selected after answering written and oral questions about whether they could be fair and impartial in an era of lost jobs, government bailouts of banks, controversial executive bonuses and Wall Street in crisis payday loans online.

Butswinkas also urged the jury to question whether the New York City borough of Brooklyn was the correct place under the law for the government to bring the case because the alleged offenses took place in the borough of Manhattan.

During the trial, prosecutors called about 20 witnesses and presented about 150 documentary exhibits to the jury. Prosecutors said the two funds, the High Grade Fund and the Enhanced Leveraged Fund, had $1.6 billion leveraged to $20 billion of assets, primarily collateralized debt obligations, securities backed by a pool of debt such as mortgages.

The defense called only three witnesses, including Robert Glenn Hubbard, the Dean of the graduate school of business at Columbia University in New York.

On Thursday, Butswinkas cited his testimony that the strategies for the two Bear Stearns funds did not play out because lenders stopped extending credit.

Hubbard told the court on Tuesday that had the funds’ hedging strategy worked, they “would have returned very large amounts of money to investors, about $700 million to the High Grade Fund, $650 million to the leveraged fund.”

PRISON TERMS POSSIBLE

The two men could be imprisoned for up to 20 years if convicted by the jury. One of Tannin’s lawyers is expected to offer a summation on Friday followed by a government rebuttal. 

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The World Series may not be over, but many fans of the defending Philadelphia Phillies are apparently giving up, leading to a plunge in the asking price for tickets being sold through ticket reselling Web sites.

Ticket search engine FanSnap reported Monday that the average price of tickets listed for sale for Game 5 in Philadelphia has fallen about 39% since Sunday night. FanSnap said there have been 2,000 tickets put up for sale during that time, swelling the supply of tickets for sale to almost 6,000.

Christian Anderson, spokesman for FanSnap, said that ticket prices for playoff games this postseason have typically edged higher as game time approaches unless there was bad weather. That’s not the case for what could be the last game of the World Series on Monday.

The price for Game 5 tickets are down an average of 60% since Friday morning. The Phillies lost games 3 and 4 to the New York Yankees on Saturday and Sunday.

Yankees fan Nathan Thompson, a physician from Manhattan, said he bought two tickets for Monday’s game at a price of $220 each early Monday. He said asking prices for the same seats in the rooftop bleacher section had been as high as $800 last week and that prices changed throughout Sunday’s game, depending on the score.

"When the Yankees went ahead, the price went down; when they Phillies tied it up, all of a sudden, the prices went back up," he said. "When we woke up this morning the prices were about half of where they were last night."

Ticket reselling site StubHub, a unit of online auction site eBay (EBAY, Fortune 500), reported similar trends. It said that the average price of a Game 5 ticket purchased on the site fell to $373 during the day Monday. That’s down 31% from the purchase price from as recently as Sunday.

Even with Cliff Lee, the Phillies’ best pitcher and winner of Game 1 of the Word Series, set to pitch Monday night, apparently many Phillies fans with tickets don’t want to risk watching the Yankees celebrate a championship at Citizens Bank Park.

The Phillies are now down three games to one in the best-of-seven series, putting the Yankees on the cusp of its first championship since 2000. 

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A former top executive at hedge fund firm ValueAct Capital is one of seven people charged with trading on inside information in Acxiom Corp.

Ronald Yee, who had been the San Francisco-based hedge fund firm’s chief financial officer until June 2008, was named in a civil suit filed by the Securities and Exchange Commission on Friday.

The SEC did not identify Yee’s former employer.

ValueAct, a nine-year-old firm that invests roughly $3.5 billion in undervalued securities, said it has been cooperating with the SEC since the agency began probing Yee in 2008.

The firm, which made national headlines when its co-founder Jeffrey Ubben became the chairman of Martha Stewart Living Omnimedia Inc, put Yee on administrative leave in April 2008. In June 2008 the partners accepted Yee’s request to resign.

ValueAct said it requires all employees to participate in rigorous training on how to handle non-public information and immediately told investors about the probe into Yee in 2008 and then wrote to them on Friday to detail the charges against him.

The hedge fund is not implicated in the scheme in any way and received a no-action letter from the SEC, confirming that it is not a target in the investigation, said George Hamel, ValueAct’s co-founder and chief operating officer.

Yee’s lawyer said he is innocent and will contest the charges.

The matter has drawn attention because it comes only two weeks after prosecutors charged prominent hedge fund firm Galleon Group’s founder Raj Rajaratnam with insider trading companies making payday loans.

At that time sources familiar with regulators’ insider trading probes said there would likely be more charges, but they did not give details about specific cases.

The cases are very different however. In the Galleon matter, the fund’s founder has been charged while in the Yee matter the hedge fund and its current partners have not been implicated in the scheme.

The SEC alleges that Yee, who joined ValueAct as chief financial officer in 2005, tipped off his brother-in-law, Chen Tang, who then traded on the information through personal accounts. Tang was employed at private-equity firm Friedman Fleischer & Lowe. The two men had previously founded a financial consulting firm together.

In 2007 Tang learned from Yee that ValueAct was trying to acquire Little Rock, Arkansas-based data management company Acxiom, the SEC said. Yee later found out that the deal was in jeopardy and passed the information to Tang, who then tipped his friends and family.

According to the complaint, Yee did not make any trades himself. Tang and the others used Yee’s tips to trade Acxiom’s securities and earned more than $6 million in illegal profits, the SEC said.

“Mr. Yee denies the charges against him and intends to vigorously contest them,” said Yee’s lawyer, Michael Celio, a partner at Keker & Van Nest in San Francisco. 

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