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What can be made of gold right now?

The sell-off in the commodity has been powerful, and it wouldn't surprise many if it were to continue. The precious metal perhaps is due for a massive correction given its historic surge. In 2011, gold traded at $250 an ounce just before it went on a massive run fueled by lots of scary economic news and plenty of raw speculation. The price hit $1,880 in August of 2011 amid lots of chatter that it was heading to $2,000. It now trades at about $1,350. This week, the commodity suffered its biggest one-day decline in more than three decades.

Most people will couch the price movement in terms of economic expectations. The economic outlook is getting much brighter in some corners. Most expect growth to accelerate and interest rates to rise. The big trade right now seems to be a rotation out of bonds and commodities and into equities.

"Normally this alone wouldn't be enough to knock back the gold price, as during most risk-on moves the US dollar weakens which often helps support the gold price. However, because of the dire macro situation in Europe and aggressive quantitative easing by the Bank of Japan, during this risk-on move the US dollar has actually strengthened. This has added further impetus to the downward move in the gold price," notes ETF Trends.

In this sort of environment, rumors will thrive. The most intriguing theory is that a "Golden Whale" is behind the big sell-off.

This theory holds that a big trader, perhaps one who was heavily invested, is dumping gold out of necessity. CNBC quoted one expert who said that, "When we see the volumes in gold that we saw, that screams to me that there's a seller of size in the markets that significantly overweighs the buyers."

As of now, however, no one has been able to pinpoint a big seller, unlike JPMorgan's London Whale, whose identity was known in the markets. Not everyone buys the theory. It might be a group of very motivated sellers, possibly hedge funds, gold ETFs forced to balance, and others. Then again, it could be a temporary correction. -Jim

Today's Top News

1. The value of leaking deals

By Jim Kim

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2. Big banks make progress on customer service

The historic insider trading investigations, which has notched nearly 80 convictions or guilty pleas, may be having an effect on investment bankers.

According to a study from Cass Business School in London, commissioned by Intralinks, there was "significant pre-announcement trading" in the stock of a target company in 11 percent of cases in 2008 and 2009. However, over the next three years, that fell to 7 percent.

Banks and bank compliance units have impressed upon employees the need to hold sensitive internal information close to their vests.

As noted by Breakingviews, the "financial hazards of gossip have grown. In the boom years from 2004 to 2007, 88 percent of deals that were leaked, either accidentally or intentionally, went on to close. That was roughly on a par with non-leaked transactions. From 2010 to 2012, only 80 percent of tipped deals reached the finish line, while nearly nine out of 10 of the ones kept quiet made it."

Of course leaked deals can have some major benefits for bankers.

"Five years ago, the researchers discovered little difference in the takeover premiums paid for the two sets of deals from 1994 to 2007. Over the last few years, leaked deals attracted a sharply larger premium — 53 percent versus 30 percent. There's no indication of causality, especially as unauthorized disclosures can come from either sellers or buyers. Yet the implications won't be lost on advisers," Breakingviews reported.

While leaking a deal may increase shareholder value, it also hikes the chances that some people, perhaps unbeknownst to the tipper, will actually trade on that information. So there's a trade-off for banks. You want the target stock to react so as to get a higher premium, but you also don't want to be implicated in illicit trading. This is a big challenge for the compliance folks.

For more:
- here's the article

Read more about: insider trading, deals
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By Jim Kim

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3. Bank of America's biggest challenge

Banks have tried mightily to repair their customer service reputations, which was no small task in the wake of the financial crisis, when all banks were tarred as anti-consumer.

After several years of middling improvement, banks seem to be making major headway. After relatively minor increases in overall customer satisfaction scores as measured by J.D. Power's annual study, aggregate scores in 2013 increased by 10 index points to 763 on a 1,000-point scale over the 2012 score. The largest increase in satisfaction came from the biggest banks. Their index score jumped 16 points to 759 in 2013.

As a group, big banks have historically trailed smaller banks, but the gap has narrowed. Midsize bank scored a 785 in 2013, up 4 points from 2012, while regional banks scored a 760, up one point from 2012.

Banks have been able to boost their scores in part by better explaining fees, one of the biggest issues in recent years.

"During the past several years, many banks have eliminated free checking and implemented new fees, which has often negatively impacted overall satisfaction. The study finds that as fees have begun to stabilize and banks have helped their customers better understand their fee structures, satisfaction in this area has begun to rebound, and is up by 14 points this year from 2012. One-third (33%) of customers say they 'completely' understand their fee structure, compared with 26 percent in 2012," notes JD Power.

The study did not produce national rankings, opting for regional rankings instead. In the Southeast, Bank of America hit a milestone. It no longer ranks last in customer service.

For more:
-here are the study results
-here's a look at California

Read more about: Bank of America, big banks
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By Jim Kim

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4. Blackstone gives up on Dell offer

Expenses no longer represent Bank of America's (NYSE:BAC) biggest challenge. With Project New BAC, the bank has proven that it can wring costs out aggressively. The trend on that front has been satisfactory.

The biggest challenge now is revenue. CEO Brian Moynihan has been running the bank for three years now, and revenue has declined every year. That trend will likely continue. The bank reported revenue of $23.85 billion for the first quarter, down a troubling 8.4 percent. Since Moynihan took the top job, revenue has fallen 25 percent, notes Reuters.

The whole industry is suffering a revenue drought, vexing many executives. The reality is that some reliable cash cows are churning out much less milk. The Durbin Amendment was a horrific blow to revenue at the consumer bank level. The end of the MBS gravy train was similarly painful at the investment banking and capital markets levels. There would appear to be no new gravy train on the horizon, which is why Bank of America is emphasizing organic growth.

The bank recently convened 100 regional executives for a two-day conference in Chicago, where they were informed that they will be held accountable for their efforts to jack revenue. The big focus will be on cross-selling. Under Moynihan's plan, regional leaders will be ranked on their ability to meet targets in about 30 categories, all aimed at cross-selling.

Reuters notes that the stakes are high for the CEO.

"Moynihan's success in increasing cross-selling could determine both his and the bank's future. Some executives inside the bank have previously said that Moynihan is seen internally as a problem-solver, but still needs to prove his credentials as someone who can also lead the bank on a growth path," it notes.

That's the only way the stock is going to get beyond tangible book value.

For more:
- here's the article

Read more about: Bank of America
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By Jim Kim

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5. Carl Icahn gives up on current proposal

Blackstone has spent the past few weeks conducting due diligence at Dell's Texas headquarters, only to conclude that its best bet is to drop out of the running to buy the ailing computer maker.

In a letter to the Dell board's special committee, the private equity giant noted that the PC sales are in steep decline (down 14 percent in the first quarter) and that it had concerns about Dell's operations going forward. The company was also said to have some big issues with the large amount of cash that Dell has built up overseas, money that the firm considers "trapped" due to tax issues.

There are lots of questions left unanswered, notably whether the role of founder Michael Dell was an issue. There were apparently at least two meetings between Mr. Dell and Blackstone representatives, but no details have been released. It's unclear if Mr. Dell was willing to commit his considerable ownership stake into the new deal. The extent to which Blackstone executives were willing to allow Mr. Dell to continue to run the company is also unknown.

As of now, the best bet for a bid superior to the one on the table by Mr. Dell and partners Silver Lake and Microsoft is Carl Icahn. He has inked an accord with the special committee, promising not to amass more than 10 percent of the shares in exchange for the ability to negotiate with other shareholders. A proxy fight spearheaded by Icahn is still a possibility, as he has refused an offer of reimbursement for his expenses. That offer was conditioned on him promising not to launch a proxy fight.

We'll see how much headway he makes now that he's the only other show in town.

For more:
-here's an article from the FT
-here's one from FOX

Read more about: lbo, Leveraged Buyout
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By Jim Kim

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