by Paul Springer

In a compelling sign of the times, U.S. regulators are forcing big banks to envision their own demise in “living wills” that outline financial emergency plans. And things always go according to plan.

“U.S. regulators approved two sets of guidelines that banks including Citigroup Inc. and JPMorgan Chase & Co. will have to follow in drafting plans to protect the broader economy in the event of their own collapse,” Bloomberg says.

The contingency planning requirement also needs Fed approval before it can go into effect.

The New York Times reports the new plans will require a lot of oversight from regulators, all with an eye to avoiding another too-big-to-fail bailout:

The documents will open a window into the financial industry’s investments, trading counterparties and concentration of risk. The firms also must share what amounts to a Plan B — details for how the company can be wound down through the bankruptcy process  . . . Armed with the contingency plans, regulators say they can prevent a repeat of the chaotic Lehman Brothers bankruptcy, which still lingers on today.

So the “living wills” appear to require a lot more than just contingency planning. Regulators will apparently be able to peek in and admonish bankers for stocking the larder with toxic RMBS securities, sub-prime loan packages, Greek debt, what have you.

Alvarez & Marshall managing director Paul Cantwell told The Financial Times that the wills sound like hands-on regulation:

Companies pursuing activities that may not be easily wound down in the event of failure could be forced to either abandon those business lines or restructure them to make their failure much easier for regulators to handle, he said.

That’s a great idea: plan your failure so it’s easier for regulators to clean up. Really, the prospect of close collaboration between bankers and regulators is amazing.

Combine the iron-fisted oversight that ignored the Madoff mess for a decade with the kind of investing insight that destroyed Lehman Brothers and scorched any number of other banks . . . and maybe we should all be planning for an economic nuclear winter scenario.

by Paul Springer

Performance numbers for August and recent legal developments show that some hedge funds were extremely busy this summer – in court and in the markets.

August was a mixed bag for hedge funds according to data just obtained by CNBC. Funds lost ground, but still faired better than the S&P 500:

Hedge funds declined by more than 2 percent in August, according to new data from Hedge Fund Research. While that performance significantly outpaced the S&P 500 (which lost roughly 5.7 percent over that same period), it has thrown the industry into negative territory for the first time in 2011.

Funds that made a habit of shorting the market were up 7% on average, CNBC says.

Those who fared particularly badly were some of Maverick Capital’s funds and vehicles managed by Paulson & Co., Reuters says.

While August’s volatility after the debt-ceiling deal kept traders busy, the wheels of justice were grinding along at their usual lackadaisical pace. The wheels have ground to a halt right on top of former Galleon head Raj Rajaratnam, who is awaiting sentencing on Sept. 27. Rajaratnam has not show the contrition evinced by some others tried in the matter, and The Guardian says his attitude may not impress the judge favorably:

The hedge fund manager convicted of conducting America’s biggest insider trading scheme has told court officials he isn’t “clear” that what he did was wrong. The admission may lead to an ever harsher sentence, say legal experts.

Former SAC Capital Advisors portfolio manager Donald Longueuil will have plenty of material to work with if asked to prepare a “what I did last summer” essay. After receiving a two-and-a-half year jail sentence in July for criminal charges of securities fraud and conspiracy, Longueuil has now agreed to pay the Securities and Exchange Commission about $250,000 in disgorgement. The  Wall Street Journal says Longeuil will receive credit for $1.25 million in the criminal case.

It was a good-news and bad-news scenario for Louis Bacon’s Moore Capital Management. The good news was the dismissal of a lawsuit that Reuters says disgruntled investors filed, alleging they had lost money because of illegal activities at the fund:

The settlement resolved claims over [trader Christopher] Pia’s alleged efforts in the last 10 seconds of trading days to enter large trades in “illiquid” platinum and palladium markets that pushed prices higher, a strategy known as “banging the close.”

The bad news: The fund already paid $25 million last year to settle charges of manipulating markets in the two metals. This year Pia agreed to pay $1 million to settle with the Commodity Futures Trading Commission.

An allegedly phony hedge fund is at issue in a civil lawsuit that the SEC filed to stop a deaf  Texas man who purportedly drew on connections with other deaf people to solicit capital for investing in traded endowment polices (TEP), the U.K. equivalent of viatical settlements. The SEC’s complaint alleges that over 7,000 deaf investors sent money to Jody Dunn, who neglected to mention that he was allegedly using some of the money to make car and mortgage payments.

Victims were told that an initial $50 investment would allow clients to receive an $80,000 loan to purchase a TEP that yielded 1.2% per day.  The ultimate destination of customer funds is not entirely clear at this point, but the commission says the money was not invested in anything – nor was it returned to investors.

by Todd Shriber

Daimler AG, the German auto giant behind Mercedes, is having difficulty gaining traction with another one of its luxury brands. Fans of rap music are probably familiar with the Maybach name, but the problem is that car enthusiasts haven’t been too fussed over the ultra-premium luxury automobile.

Maybach was reintroduced by Daimler in 2002, but the brand has sputtered to become a legitimate threat to BMW’s Rolls-Royce and Volkswagen’s Bentley. Just 200 Maybachs were sold in 2010 compared to 2,700 models for Rolls-Royce and 5,100 for Bentley, Bloomberg reported. Additionally, Maybach’s tepid sales don’t jibe with the company’s previous claims that it was immune from the global economic crisis a couple of years ago.

Daimler says it will make a decision on the future of the Maybach in time, but there is a chance the automaker’s hand may be forced.

One analyst quoted by Bloomberg said he can’t see any future for the Maybach marque. Another said Daimler can’t continue Maybach in its current form. Obviously, the goal for Daimler should be to sell more Maybachs, but that goal is made all the more difficult by a dwindling dealer network in the U.S., one of the most important markets for the brand.

When Maybach reappeared in 2001, there were 71 dealers in the U.S., but by 2007, that number slid to 42, according to Left Lane News. Now, there are just 30 Maybach dealers in the U.S., Bloomberg reported.

Only time will tell what Daimler has in store for the Maybach label. But whatever the future holds, fans of the brand can only hope Daimler doesn’t do to Maybach what Jay-Z and Kanye West did to a Maybach in the “Otis” video.

by Todd Shriber

Shelling out nearly $5.3 million over the past two years to have lunch with value-investing legend Warren Buffett was not only charitable on the part of one hedge-fund manager. It was also a wise investment, as those lunches have helped Ted Weschler of Virginia-based Peninsula Capital Advisors land a job with Buffett’s Berkshire Hathaway.

Weschler, 50, is the formerly anonymous winner of the 2010 and 2011 auction where bidders pay to have lunch with Buffett with the proceeds going to Glide, a San Francisco-area church and mission, according to Fortune.

In previous years, the winning bidder enjoyed lunch with Buffett at New York’s famous Smith & Wollensky steakhouse. But Weschler opted for more under-the-radar dining and flew to Omaha both years to enjoy meals with Buffett on the latter’s turf, The San Francisco Chronicle reported.

All of that good charity and good fortune has Weschler looking at a new employment opportunity helping Todd Coombs, another former hedge-fund manager, and perhaps a yet-to-be-named third person run Berkshire’s massive stock and bond portfolio, Fortune reported.

Weschler will close Peninsula Capital in anticipation of starting his new job at Berkshire next year. The $2 billion fund is run in modest fashion that would make Buffett proud. Weschler, an analyst and an office manager work out of an office above a bookstore in Charlottesville, Va., according to Bloomberg.

The stakes for Weschler will be higher at Berkshire, which has a $100 billion portfolio. Berkshire’s current equity holdings include American Express (AXP), Coca-Cola (KO), Kraft (KFT) and Wal-Mart (WMT), among others. The stakes may be raised, but it was bidding on steaks that got Weschler to Berkshire in the first place.

by Todd Shriber

There are plenty of wild ideas for stock indexes out there, but this one may take the cake: The Dow Jones Summer/Winter Games Index. Yes, that’s right. An index has been formed to track companies that are corporate sponsors of the upcoming 2012 Summer Olympics in London and the 2014 Winter Olympics in Russia.

Believe it or not, this index has been around for a while. Dow Jones says it was initially calculated on Dec. 6, 2007. And until Tuesday, the Dow Jones Summer/Winter Games Index was home to 37 stocks, seven more than are found in the Dow Jones Industrial Average.

Prepare to welcome Olympic index member 38: General Mills (GIS), the second-largest U.S. food company. Big G’s Nature Valley brand will be the official cereal snack bar supplier to the London games, Dow Jones said in a statement. Dow Jones said the index is reviewed quarterly and General Mills was added as part of the September. No members were deleted.

With a median market value of $14.6 billion, the Olympic index isn’t home to a bunch of no-name companies. In fact, six Dow components are found among the index’s top holdings. Those are Coca-Cola (KO), Procter & Gamble (PG), General Electric (GE), McDonald’s (MCD), Cisco (CSCO) and General Mills rival Kraft (KFT).

Since indexes aren’t securities that can be purchased, perhaps the biggest question surrounding the Dow Jones Summer/Winter Games Index isn’t why it even exists, but why hasn’t an ETF been created to track it? After all, ETF issuers love the obscure.

*Disclosure: Writer is long General Mills.

Chart: Zignals.com

by Paul Springer

Commercial vehicle financer AutoChina International Ltd. (AUTC) started out the year with extreme volatility driven by accounting questions, and now the liquidity of the company’s trading is drying out.

AutoChina shares plunged 39% Tuesday on news of a delisting notice from Nasdaq. Sometimes these notices are not the end of the world, and when stock price is the issue, the regulator sometimes allows issuers extra time to let the price rise.

In this case, the situation is more dire. The company sought more time to file its already late annual report for 2010, and Nasdaq said no dice. In addition to the late report, Nasdaq says, the company has another problem in the way of an SEC investigation.

AutoChina said in a release that the Nasdaq determined that the request for more filing time “ was not warranted and that the Company’s securities would be delisted from Nasdaq on September 19, 2011 unless the Company appealed the determination.”

The company said earlier in the summer that it would have to restate its 2009 earnings.

Trading volume has already been falling off for months before the advent of the delisting notice. The situation presents a twist on the numerous others where China-based companies were accused, rightfully or not, of having no real business operations.

The company is a real company with ongoing operations. In the case of AutoChina, it seems, the problem is that no one really knows what’s going on.

In June, the company’s notice of an SEC investigation came with the statement that the classification of earn-out shares as derivatives would affect reporting to an unknown extent. “The Company has not yet determined the exact effect of this potential change to its previously reported financial statements,” AutoChina said in the regulatory filing.

In February of this year, AutoChina shares fell 10%, The Motley Fool says, after a critical Forensic Factor report was linked by Zero Hedge.

About a month later, Seeking Alpha described a volatility rollercoaster ride in which AutoChina stock fell after another Forensic Factor report, then rose about 60% in a two-week short squeeze.

In addition to confusion generated by accounting for vehicle revenues and the situation with the earn-out shares, some questions lingered after the company announced changes to its structure in this regulatory filing:

As previously disclosed, AutoChina is in the process of converting its corporate structure from a variable interest entity, or VIE, structure to a direct ownership structure.  In September 2010 and in connection with this restructuring, AutoChina established a new wholly-foreign-owned enterprise in China, named Ganglian Finance Leasing Co., Ltd., or Ganglian Finance Leasing.  Ganglian Finance Leasing is in the business of leasing commercial vehicles.

What was that? Allow the company to explain:

In December 2010, AutoChina increased the paid-in capital of Ganglian Finance Leasing through its VIE, Hebei Shijie Kaiyuan Auto Trade Co., Ltd., or Kaiyuan Auto Trade, and converted Ganglian Finance Leasing from a wholly foreign-owned enterprise to a Chinese-foreign joint venture.  . . .Thereafter, Ganglian Finance Leasing obtained the business licenses required to engage in the vehicle leasing business and commenced to lease commercial vehicles directly.   On May 31, 2011, Ganglian Finance Leasing was converted back to a wholly foreign owned enterprise and is currently 100% owned by Fancy Think Limited, a Hong Kong company and AutoChina’s indirect wholly-owned subsidiary.  In addition, on June 30, 2011, Hebei Chuangjie Trading Co., Ltd., or Chuangjie Trading, was converted from a VIE to an indirect wholly owned subsidiary of AutoChina, and is currently 100% owned by Ganglian Finance Leasing. . . .

There’s more, but no one’s listening. The company may have had some accounting issues, but initially the conversation over accounting and the company’s valuation was a spirited one with plenty of participants on both the long and short sides.

Now the company is having trouble doing its own accounting and explaining its baroque corporate structure. The conversation is dying down, and apparently few traders feel comfortable with any trading thesis for the company.

AutoTune has been on Nasdaq’s list of volume decreases day after day now, and with daily volume down to the thousands or even hundreds, delisting might be moot.

by Paul Springer

So far this week, news from Europe has been driving the direction for U.S. equity markets. It’s usually the other way around. Trading has been reflective of the classic good-news-and-bad-news situation.

Stocks don’t necessarily plunge, but are weak and biased to the downside. Traders know that the bad news – at best – will linger for some time as investors worry that Greek sovereign debt problems would destroy the Euro or even the European Union itself.

Indeed, news from Greece just keeps getting worse. Bloomberg has reported that markets reflect a 98% chance that Greece will default on its debt in the next few years. But market players are looking for something in the much nearer future:

“Everyone’s pricing in a pretty near-term default and I think it’ll be a hard event,” said Peter Tchir, founder of hedge fund TF Market Advisors in New York. “Clearly this austerity plan is not working.”

It’s probably not a coincidence that the S&P choked a bit around the same time as that report hit the wires.

In response (anticipation?), the Euro fell to a seven-month low against the U.S. Dollar, AP reports.

The idea of a global economy once sounded pleasant, but the interconnectedness in Europe continues to pose problems. “French banks reportedly have some of the biggest exposure to Greece and could be vulnerable if the government defaults on its debt,” according to Reuters, which says people are buying Euro puts at a time when the Euro hit a ten-year low against the Yen. Several French banks were downgraded by Moody’s Wednesday.

EU critic Dennis Gartman says the Union is pretty nearly kaput at this point, according to The Wall Street Journal’s reading of his investment letter. Here’s what Gartman is saying now:

This thing that was European Monetary… and eventually European political… Union was a chimera. A falsehood . . . The end-game is upon us. The experiment, from our perspective, is over, and all that is left is the final recognition of that fact.

A report from MarketWatch says some investors are planning for the Euro to exist stage left — and using various rationales for Euro pessimism. One factor is a spike in the Euro/Dollar exchange rate volatility. Another is less well known:

More worrying, a wonky gauge called a “risk reversal,” which tracks investor demand for bearish put options on the euro/dollar rate relative to bullish calls, is at its most extreme level since the euro was created in 1999. This suggests investors are scrambling to buy puts that grant the right to sell the euro at a predetermined rate in the future to avoid losing money if the euro collapses.

While it’s premature to write an epitaph for the Euro or the EU, there is little in the way of obvious solutions to economic problems in the U.S. or Europe.

A BNY ConvergEx Group managing director told The Economic Times that it was not so much the Europe problem as the lack of a solution that’s sucking life out of markets: “We have no timeline about when we could get any clarity, and financials will continue to be the most egregiously hit in this environment.”

Meanwhile, as the economic masters of the universe wonk away about Europe’s sovereign debt difficulties, this is one crisis that is also hitting at the guy on the street who might normally remain oblivious to economic currents.

This is certainly the case in Greece, whose new austerity plan brings layoffs, new taxes, and wealth cuts seemingly directed at higher income earners.

The austerity is already threatening to trickle down, according to The Sydney Morning Herald:

Though designed to target mainly high earners, the tariff could further anger the crisis-weary middle class and pose political risks for the socialist government, which repeatedly has pledged to protect households from being hurt by further austerity measures.

People are rioting in Greece over the new austerity plan, and photos in The Herald and elsewhere paint a grim picture.

In the U.S., we’re fortunate the market’s difficulties since last spring have played out in the indexes and not the streets. Some other nations aren’t having it so lucky.

We’ve learned FOX Business Network is planning to change the name of their 4 PM/ET program from “Bulls & Bears” to “After the Bell”. Word on the street is the name change takes effect Monday, September 12; anchors Liz Claman and David Asman stay the same.

Claman also anchors “Countdown to the Closing Bell” in the 3 pm hour, so the show title is a very apt description of the post-market analysis Claman and Asman provide. The new show will debut Monday with Claman anchoring live from the floor of BGC Partners for their 7th annual Global Charity Day.

by Todd Shriber

With another Republican candidate debate and President Barack Obama’s long-anticipated jobs speech this week, it’s fair to say that we’re already in the throes of election season. Sure, Election Day 2012 is still 14 months away, but in the world of politics, it’s never too early to start pandering for votes.

Along those lines, Trader Daily decided to take a look at the 10 most important states in the 2012 election, either to Obama’s re-election hopes or the designs any Republican challenger has on defeating the incumbent. California, Illinois, New York and Texas were not included on this list because, based on recent trends, it is highly unlikely that any of these states flip sides.

States appear in order of electoral votes from least to most (electoral votes in parentheses).

10) New Hampshire (4)

The only state in New England that can be viewed as a toss-up, New Hampshire has been identified as critical to the hopes of both parties in 2012, according to The Wall Street Journal.

9) Nevada (6)

Nevada is an interesting case not only because it is the epitome of a tossup state, but also because it was worth five votes in the electoral college in 2008, but in 2012 it will be worth six. President Obama won Nevada in 2008, but Nevada is not loyal. In the three elections from 1980 to 1988, Nevada went Republican. Then Bill Clinton won it in 1992 and 1996. George W. Bush won it twice before Obama cleared it in 2008.

8) Colorado (9)

Once reliably red, demographic changes have altered Colorado’s political hue. And while nine electoral votes won’t have anyone confusing Colorado with California or Texas, in a close race, Colorado will matter, as The Wall Street Journal noted.

7) Wisconsin (10)

Wisconsin has been a blue state in presidential races for a while now. But in 2010, the state elected a Republican governor and senator, so the Democrats could face a dog fight here.

6) Indiana (11)

Obama pulled a big surprise here in 2008. Red Mass Group says the Republicans must win Indiana back in 2012 “in order to remain competitive and relevant.”

5) Virginia (13)

See above. That comment from Red Mass was made in reference to several states, including Virginia. Virginia was once an easy win for Republicans, but Obama dispelled that notion. A potentially competitive Senate race shines the spotlight even brighter on Virginia in 2012.

4) North Carolina (15)

Virginia’s neighbor to the south was also another former easy win for the GOP that went Democrat in 2008. Fifteen electoral votes is enough to get both parties spending plenty of money in the Tar Heel state.

3) Ohio (20)

Ohio elected a Republican governor and senator in 2010, but that hasn’t changed a very weak jobs picture. The big question is which party does Ohio blame its economic woes on, because the party that escapes Ohio’s wrath probably carries this critical state.

2) Pennsylvania (21)

Pennsylvania hasn’t gone Republican in a presidential race since 1998, but it usually appears competitive enough to get both parties spending money there. Losing Pennsylvania would arguably cripple Obama’s re-election hopes.

1) Florida (29)

It’s no surprise that at least one Florida politician acknowledges the fact that Florida is the most important state in presidential politics, according to Politico. President Obama won here in 2008, but Florida has had a tendency to bounce back and forth. The last time a candidate lost Florida and won the election? Bill Clinton in 1992.

by Paul Springer

Mice played a central role in the 100% jump Spherix Inc. (SPEX) stock took this morning.

After the close on Thursday, Spherix announced “that its drug candidate, SPX-106, achieved statistically significant reductions in VLDL and LDL cholesterol when administered in combination with Dtagatose (SPX-106T) for nine weeks to genetically engineered mice prone to dyslipidemia.”

LDL is the “bad” cholesterol. VLDL is bad, too, but can’t be measured directly in humans, according to Mayo Clinic cardiologist Dr. Thomas Behrenbeck:

There’s no simple, direct way to measure VLDL cholesterol, which is why it’s normally not mentioned during a routine cholesterol screening. VLDL cholesterol is usually estimated as a percentage of your triglyceride value.

So what’s with the mice? The testing on mice indicates the new treatment has not reached the human trials stage yet, Spherix said in a statement:

The first studies designed specifically to test SPX-106T are nearing completion and results will be announced this fall. The Company plans to start an initial human efficacy study in the first quarter of 2012.

Biotech stocks routinely take a rocket ride when testing hits key clinical trial milestones or when the U.S. Food and Drug Administration approves results or gives the greenlight for sale to the public.

Success in a rodent tests is good news. But a 100% jump on these results seems like an indication of the panic gnawing at markets this summer.

This is a company that faces monstrous competition while still offering interesting possibilities. A number of cholesterol treatments are being aggressively marketed by huge corporations – too aggressively according to critics like this one, who notes a campaign to put chewable cholestrol drugs in the mouths of school children.

The currently available drugs also come with a host of possible side-effects. Clearly, a treatment with fewer complications could tap a huge market. But a study on mice doesn’t get you there.

Still, Spherix is not a one-trick pony – it’s also working on a diabetes treatment (D-Tagatose). The company said it’s seeking  a pharmaceutical partner for continuing work on the diabetes drug. The partnership could expedite development or even lead to a buyout that would cash out Spherix shareholders.

At this point, though, it remains unclear who is buying Spherix at twice yesterday’s price.

Maybe it’s the mice. After all, they are the ultimate insiders in this situation.