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Dow Jones Business News
Citibank Closes All Long Dollar Positions as Unit Plunges
Tuesday November 18, 4:39 pm ET


NEW YORK -- Citibank (NYSE:C - News), one of the largest traders in global foreign exchange markets and biggest dollar bulls, closed all its existing long dollar positions Tuesday.

The move, on the day the dollar plunged to record lows against the euro, is significant in that the dollar's slide has forced one of the most aggressive dollar bulls in the market to temper its optimism toward the currency.

In a research note, Citibank currency analysts cite three specific reasons: the U.S. decision Tuesday to impose temporary quotas on certain textile imports from China, the dollar's failure to respond to positive U.S. economic data and the breakdown of key technical levels such as dollar index support at 90.56.

Citibank, a unit of Citigroup Inc. , retains a bullish outlook for the dollar in the medium term, and will look "for more advantageous entry levels over coming weeks."

But the bank posted 1.5% losses in closing out its long dollar/Swiss position at 1.2945 Swiss francs, losses of 2% in closing its short euro/dollar position at $1.1940, and losses of 0.7% in closing its long dollar/yen position at 108.04 yen.

Tuesday, the euro surged to a record high of $1.1960, the dollar fell to a five-month low of 1.2931 Swiss francs and dipped below 108 yen, within a whisker of new three-year lows.

You are comparing apples to oranges.

The allegations are equivalent to robbery, which is not the same thing as some tech company having to hire an extra lawyer to fill out paperwork for the SEC.

Below is a better explanation from Morningstar (http://news.morningstar.com/doc/article/0,1,96092,00.html):

"Here's how the alleged arrangement worked. Say that a tech bellwether announces better-than-expected earnings after the U.S. markets have stopped trading. The hedge fund could then buy tech-heavy funds at the market-closing price, assured that technology stocks would rally the next day. This hurts fund investors because the fund manager would hold that hot money as cash, thus diluting the fund's participation in a rally.

That something like this could happen at a big money manager is amazing. It's an article of faith for fund investors that everyone is treated equally, yet that's not what happened here if the charges are true. If they are true, then this scandal ranks up there with Heartland's muni funds and Piper Jaffrey's mortgage funds, yet it happened at a much larger firm. For the gory details, check out Spitzer's complaint.

The second part of the complaint alleges that Janus, Strong, and Banc One allowed market-timers to buy their funds during the trading day for a quick profit. It's not a big surprise that timing was going on, but it is disturbing that fund companies would actually encourage the practice. Some firms, such as Vanguard and Fidelity, have slammed the door on market-timers with a variety of tools, but others have winked at them because they want to collect the fees that extra assets bring. While this is more of a gray area legally, it's still not appropriate to knowingly allow market-timers to make profits at the expense of long-term investors.

Here's how these kind of trades can hurt long-term investors while benefitting market-timing. The basic idea is to make an arbitrage play that takes advantage of the difference between the NAV at the end of the day and the information that's available. For example, European and Asian markets close well before the U.S., yet fund companies allow investors to buy in at the day's ending NAV all the way up the U.S. close. If U.S. stocks rally sharply in the afternoon, it's a very good bet that European and Asian stocks will follow suit the next day. Thus, their ending prices for that day don't reflect the rally that's sure to come. An arbitrageur can exploit that difference by purchasing a U.S. fund in the interval between Europe's close and the U.S. market's 4:00 p.m. (Eastern) close. This hurts long-term investors because, as in the example above, it drives up the fund's cash position so that their participation in the rally is diluted."

That's one big shift to the negative side.

You are absolutely right. But, the problem is there is a lot of it. It's not just a small handful of companies.

DJ US/N Korea/Nuclear -2: Also Says It Plans Nuclear Test


WASHINGTON (AP)--North Korea announced at a six-nation conference in China on East Asian security that it intends to formally declare its possession of nuclear weapons and to carry out a nuclear test, a U.S. official said Thursday.

North Korean Deputy Foreign Minister Kim Yong Il also told the gathering that his country has the means to deliver nuclear weapons, an apparent reference to the North's highly developed missile program.

The comments cast a pall over Thursday's plenary session, which included representatives of the United States, South Korea, China, Japan and Russia, in addition to North Korea.

Sorry, hit the wrong button. Should be:

Top 10 contributors to Congress and amounts from the Finance/Insurance/Real Estate industries:


1
National Assn of Realtors
$4,417,113

2
Freddie Mac
$4,175,174

3
Goldman Sachs
$3,442,110

4
Citigroup Inc
$3,069,880

5
Ameriquest Capital
$2,710,000

6
AFLAC Inc
$2,522,405

7
Credit Union National Assn
$2,386,534

8
Fannie Mae
$2,370,800

9
American International Group
$2,230,407

10
Blue Cross/Blue Shield
$2,227,145


http://www.opensecrets.org/industries/contrib.asp?Ind=F

Top 10 contributors and amounts from the Finance/Insurance/Real Estate industries:


1
National Assn of Realtors
$4,417,113

2
Freddie Mac
$4,175,174

3
Goldman Sachs
$3,442,110

4
Citigroup Inc
$3,069,880

5
Ameriquest Capital
$2,710,000

6
AFLAC Inc
$2,522,405

7
Credit Union National Assn
$2,386,534

8
Fannie Mae
$2,370,800

9
American International Group
$2,230,407

10
Blue Cross/Blue Shield
$2,227,145

"Based on our economic forecast, I expect foreclosure postings to continue at or about the current level at least into the first quarter of 2004."

At that rate, foreclosures in the DFW area will be hitting over 10,000 foreclosures per quarter in about 4 months. Results of a "jobless recovery"?

Article Date: 8/18/2003

From the Wall Street Journal:

"The economy and the stock market may be perking up, but the nation's corporate executives aren't yet buying into the recovery. In fact, they are selling their company's stock at levels not seen in more than a year, a potentially ominous sign for the market in the months ahead. Common Wall Street wisdom, and recent history, hold that the sentiment of company insiders when it comes to their own stock is an unusually accurate indicator of future market performance. Executives, after all, are among the best-informed investors when it comes to their companies, ... Their recent predictions aren't very encouraging. According to Thomson Financial, the dollar ratio of insider transactions in July was $32.21 in sales for every $1 in purchases, the highest monthly reading since May 2001. July marked the third consecutive month the ratio topped 20 to 1, a bearish level that hasn't been sustained for such a period since July through September 2000. After that streak, the Standard & Poor's 500-stock index dropped 19%..."

LOL apparently not

"He further warned of the increased "spin" emerging from Wall Street, ..."

That's something you'll never hear from Dick Grasso.

Mortgage company folds, surprising regulators
2003-08-16
by Greg Heberlein
Journal Reporter

BELLEVUE -- A large California mortgage company went belly up Friday, surprising bretheren and regulators alike and sending 43 employees to the company's Bellevue office into the unemployment lines.

The Capitol Commerce Mortgage Co. of Sacramento, with many billions of dollars of mortgages funded since it started business seven years ago, announced it is seeking protection from creditors under Chapter 11 of the federal Bankruptcy Code.

Last year alone, Capitol funded 6,814 loans out of its Bellevue office worth an average $169,000, or $1.15 billion in all.

Maggie Blair, who runs the Bellevue office, referred calls to Sacramento. The head office did not return calls. But others spoke.

``I was really shocked,'' said Sarah Gilcrist, a senior loan officer for United Pacific Investments in Federal Way. United was one of the couple dozen mortgage companies that relied on Capitol for funding.

``This is very scary,'' Gilcrist said. ``We didn't see this coming at all.''

Nor did the state of Washington's Department of Financial Institutions.

``They reported to us in March,'' said Scott Kinney, the regulator's communications director. ``It showed they had significant money to operate and do business.''

The news sent Connie Hollerith of Pyramid Mortgage in Edmonds scurrying from Capitol's quarters at the corner of 112th Avenue Southeast and Eighth Street Southeast.

``I've got two loans that desperately need to fund today,'' she said. But Hollerith didn't hold the problems against Blair's staff.

``They're great people,'' she said. ``This office didn't do anything wrong.''

Judging from comments from a handful of mortgage-market pros, Capitol was hurt when interest rates skyrocketed right after Capitol guaranteed lower rates to borrowers.

``With the high volume of loans today and the rise in interest rates, it is possible a lender cannot fund all the loans it has committed to at the rates they have committed,'' said Dale Miller, president of the Washington State Mortgage Association.

Miller, who operates Paramount Mortgage in Bellevue, said the lag between when a consumer gets a rate guarantee and when it actually is funded usually takes about six weeks.

Six weeks or so ago, mortgage rates were at a multiple-decade low of 4.75 percent. Today, the rate is 6.25. That's a 32 percent leap in rates in a short time period.

The situation is painful for consumers. A 1.5 percent difference in a mortgage can mean many tens of thousands of dollars to be paid over the 30-year life of the mortgage. But there are other costs, too.

Gilcrist said when a loan doesn't fund by its deadline, the borrower has to pay penalties of $50 to $100 a day. Plus there's a big psychological dip.

``People think their rates were locked'' for a month or two, Gilcrist said. ``Yesterday we were told the loans would be funded. But today, they said no money.'' She was told to come to Bellevue and pick up her company's loan files.

Gilcrist estimated that Bellevue Capitol certainly had hundreds of deals, ``probably thousands'' in the mix.

``They're very aggressive,'' Hollerith said. ``They thought interest rates would never turn, and somebody made a mistake.''

Being aggressive ``means to me they're on the street with lower loans than others, trying to garner a larger market percentage,'' Miller said. ``That works fine as long as rates are stable, as long as they've covered their pipeline.''

Miller said that as rates cascaded, the market was flooded, mostly by existing homeowners refinancing older mortgages. He said many would pass as the rates fell, trying to time the bottom of the market. That stuffed the pipeline, making it more difficult for the first-time borrower to get service.

Miller, who runs the trade group for the state's mortgage industry, believes other lenders will step in to help Capitol's discards. He does not anticipate a worsening of the problem. And he thinks rates may improve.

``I've been in the business 30 years,'' Miller said, ``and I've never seen interest rates go up this fast without retracing. It wouldn't surprise me if it was 50 percent.''

In the heat of battle Friday, Gilcrist couldn't imagine such a rosy prospect.

``We're all really stressed out,'' Gilcrist said. ``We could lose our jobs.''

Some already have.

Greg Heberlein can be reached at greg.heberlein@kingcountyjournal.com or 425-453-4228.

http://www.kingcountyjournal.com/sited/story/html/140438