Wednesday, January 7, 2009

Regulators probed Madoff eight times over 16 years: report

Bernard L. Madoff Investment Securities LLC was examined at least eight times in 16 years by the U.S. Securities and Exchange Commission (SEC) and other regulators, who often came armed with suspicions, the Wall Street Journal said.

SEC officials followed up on emails from a New York hedge fund that described Bernard Madoff's business practices as "highly unusual," the paper said.

The Financial Industry Regulatory Authority, the industry-run watchdog for brokerage firms, reported in 2007 that parts of the firm appeared to have no customers, according to the paper.

Madoff was interviewed at least twice by the SEC, the paper said, adding that regulators never came close to uncovering the alleged $50 billion Ponzi scheme that investigators now believe began in the 1970s.

The SEC could not be immediately reached for comment by Reuters.

The serial regulatory failures will be on display on Monday when Congress holds a hearing to probe why the alleged fraud went undetected, according to the Journal.

Among the key witnesses is SEC Inspector General David Kotz, who was asked last month by the agency's chairman, Christopher Cox, to investigate the mess, the paper said.

Oil up 38% since Christmas

Oil prices soared again Monday - moving closer to the $50 mark - as the movement of Israeli forces into the Gaza Strip this weekend added to worries about Middle East supply disruption.

U.S. crude for February delivery rose $2.47, or more than 5%, to settle at $48.81 a barrel. It rose as high as $49.28 before easing.

It was the fifth gain for oil in the past six sessions, rising 38% in that span from a close of $35.35 on Dec. 24.

Prices have risen in recent days as investors worried that fighting in the Middle East could lead to a withholding of supplies from a major oil producing nation such as Iran.

"That's a wild card all the time (Israel gets involved in a conflict), but that's really hard to imagine," said James Cordier, founder of brokerage in Tampa, Fla.

An Iranian military commander called on Islamic nations Sunday to pressure Israel's Western allies by withholding crude oil supplies. However, a source within the Organization of Petroleum Exporting Countries, of which Iran is a member, said the implementation of any such plan was "very unlikely," according to Reuters.

"The reality is there's no oil involved," said James Williams, energy economist with WTRG Economics in London, Ark.

Israel and the Gaza Strip are not major oil producers.

The last major crude disruption resulting from a conflict involving Israel came in 1973 with the Middle East oil embargo, Williams said.

That year, Middle Eastern nations withheld exports in protest over American support of Israel during the Yom Kippur war.

2009 bulls: Prices also rose as a lot of commodity investors, who had been waiting in the wings toward the end of 2008, began making their first 2009 purchases, according to Cordier.

The first official day of 2009 oil trading was Friday, but because it was not a full week due to the New Year holiday, the number of trades in the market was relatively low.

"A lot of (investors) were sidelined at the end of last year," said Cordier. "The stock market has been in flux, so much that people are looking for an alternative investment."

Commodities may be that alternative, and some investors are looking for long-term bets, he added.

Russia: Investors have also been keeping a wary eye on Russia after its state-owned energy company held back deliveries of natural gas last week from neighboring Ukraine due to a contract dispute.

The move has already reduced the flow of energy supplies to the Czech Republic, Turkey and other Eastern European nations, according to reports.

While the current dispute does not involve crude oil, it points out Europe's precarious position of relying on Russia for most of its energy needs, according to Williams.

"I think (Russian Prime Minister Vladimir) Putin has pretty well demonstrated he will use energy as a policy tool," added Williams.

Many investors have been worried over the past several months that Russia, a major oil producer, may try to follow in the footsteps of OPEC and cut production or take some other coordinated action in an effort to boost prices.

Demand: Crude oil prices have fallen more than $100 a barrel since hitting a record $147.27 a barrel last year as demand worries began to appear.

Demand for crude has fallen off dramatically following an unprecedented slowdown in global economic activity, but supplies have remained steady, according to Michael Lynch, president of energy advisory Strategic Energy & Economic Research, Inc.

"We still have a lot of surplus oil on the market and in storage," he said.

Concern about the economy shows no sign of abating. In the United States, the world's largest oil consumer, President-elect Barack Obama was set to push an economic stimulus package that could cost between $675 and $775 billion.

And monetary policy officials at the Federal Reserve and the European Central Bank geared up for what could be a lengthy fight against currency deflation.

The market will be looking to see what kind of impact production cuts from OPEC will have on inventories, according to Lynch.

OPEC: OPEC, whose members produce about 40% of the world's oil, has been increasingly concerned about the price of crude oil over the past several months.

At the end of last year, OPEC pledged to bolster prices by reducing production by 2.2 million barrels a day starting this month.

The group is also mulling another emergency meeting in Kuwait in February to discuss production levels, according to reports.

The low price of oil has also prompted China to continue expanding its strategic energy stockpiles. The United States has also taken the opportunity to resume filling the Strategic Petroleum Reserve.

U.S., European data grim

Dismal economic data from the United States and Europe pointed to further pain for the world's two largest economies, while aluminum maker Alcoa Inc plans to slash thousands of jobs and curtail operations to conserve cash in a deepening recession.

Toyota Motor Corp said it would shut all of its Japanese production for 11 days and petrochemical group LyondellBasell's U.S. operations filed for bankruptcy, adding to the steady flow of bad news.

The financial turmoil that has worsened in recent months also prompted German billionaire Adolf Merckle to commit suicide, his family said, as that nation's fifth richest man sank into despair over huge losses suffered by his companies.

Despite weak figures for U.S. housing, factory and service segments, U.S. stocks managed a modest gain, as did European and Asian stocks earlier in the day.

The sagging U.S. housing market, which prompted the implosion of the financial system and brought down the nation's economy, showed further weakness, with pending sales of existing homes in November dropping to their lowest level in at least seven years.

The U.S. service sector, which represents about 80 percent of the its overall economic activity, shrank for a third consecutive month in December, according to the Institute for Supply Management, although the decline was less than expected.

U.S. data released on Tuesday also showed new factory orders plunged 4.6 percent in November, far steeper than the 2.5 percent decline analysts predicted.

"We are in the throes of the worst recession since the early 1980s," said Kevin Flanagan, fixed income strategist for global wealth management at Morgan Stanley. "Factory orders are getting hit again. The economy is really not receiving any support from any cylinders of the engine."


In Europe, a sharper-than-expected fall in euro zone inflation to a 26-month low of 1.6 percent in December knocked back the euro and further supported expectations for a European Central Bank (ECB) rate cut next week.

ECB rate-cut expectations were also boosted by data showing the euro zone private sector services economy shrank sharply in December and firms cut more jobs than expected, pointing to a deep recession lasting well into 2009.

The Markit Eurozone Purchasing Managers' Index of about 2,000 services companies, from banks to retailers, fell to 42.1 in December from 42.5 a month ago, a new low in the survey's 10-year history.

"Sharply contracting new orders, backlogs of work and employment reinforce the belief that the euro zone faces an extremely difficult start to 2009," said Howard Archer, an economist at IHS Global Insight.


But global stock markets rose, with European and Asian shares posting gains for the sixth- and seventh-straight sessions, respectively. The dollar climbed as investors anticipated an economic stimulus package of up to 50 billion euros ($67.4 billion) in Germany and an expected $775 billion proposal from U.S. President-elect Barack Obama.

The U.S. Dow Jones Industrial average edged up 0.7 percent.

"Growing expectations for the administration of Obama are making investors that much more willing to take risks, and I think we're also seeing more buying by foreign investors," said Hideyuki Ishiguro, supervisor at the investment advisory department of Okasan Securities in Tokyo.

MSCI's All-Country World stock index has jumped 25 percent from a five-year low in late November.

Adding to Europe's economic woes, a gas pricing dispute between Moscow and Kiev threatened supplies to the continent as Russian gas via Ukraine to southeast Europe and Turkey was halted, pushing British gas market prices up more than 10 percent.

Flows were cut to Bulgaria, Turkey, Macedonia, Greece and Croatia, while Italy, Austria and the Czech Republic reported sharp falls. European energy companies receive about a fifth of their gas via pipelines through Ukraine.


With the global downturn hitting automakers particularly hard, Toyota, the world's biggest, said it would shut all its factories in Japan for 11 days in February and March.

Alcoa, the largest U.S. aluminum maker, announced it would curtail production and cut some 13,500 jobs, or 13 percent of its workforce to conserve cash and cut costs.

In China, which relies on strong growth to create jobs for its millions of migrant workers and graduates, state-run Outlook (Liaowang) Magazine said that rising unemployment in 2009 threatened an upsurge in protests and riots.

"Without doubt, now we're entering a peak period for mass incidents," Huang Ho, a reporter from state news agency Xinhua, told the magazine.

Though researchers at the country's central bank forecast China's economy would grow 8 percent this year, many independent analysts' predictions are substantially lower.