• FBI probes Countrywide. The FBI has opened a criminal inquiry to probe whether Countrywide Financial (CFC) intentionally misrepresented its financial condition in SEC filings. The FBI is investigating more than a dozen subprime lenders' origination and securitization processes, and probing possible conflicts of interest between lenders and investors. If Countrywide is found guilty of fraud, it could scuttle a planned $4B acquisition of the company by Bank of America (BAC).
• Great TIP. Recent negative yields on TIPS [Treasury Inflation-Protected Security] signal investors are confident the Fed will lose control of inflation in its current rate-cutting phase. TIPS (TIP), which have never before traded below 0%, ended last week at -0.16% as investors clamor to protect themselves from inflation, even giving up a yield on the notes that give them that protection. Many analysts say TIPS are still a bargain.
• Chinese trade gap shrinks. China's trade surplus plunged 63% in February from a year ago, to $8.6B from $23.7B, as China's (PGJ, FXI, GXC) robust economic growth is driving demand for imports, while its inflation makes its goods less appealing to Europeans and Americans. Economists were expecting a $22.5B surplus. Exports rose 6.5%, the slowest pace in almost six years. "The remarkable rise in China's trade surplus is nearing its end," RBS strategist Ben Simpfendorfer said, though he doesn't see the surplus evaporating abruptly.
• Q1/Q2 earnings to idle. Analysts expect S&P 500 constituent companies (SPY) to grow Q1 earnings by 0.4% (down from 0.9% last week), and Q2 earnings by 0.9% (down from 1.1%). In Q4, earnings fell 20.4%, their worst showing in six years. Financial earnings fared the worst with a 94% earnings decline, while healthcare and tech companies posted 13% and 28% average earnings gains in Q4, respectively.
• Shave and a haircut. Banks who lend to hedge funds are reducing their exposure by increasing "haircuts" on all forms of collateral -- even T-notes. Banks typically lend funds a smidgin less than the value of the securities used as collateral (hence a "haircut"). Recently, haircuts on AAA asset-backed securities are up to 15% from 3% last summer; corporate bonds are 10% up from 5%; and at least one bank has increased Treasury haircuts (usually 0.25-3%). Coupled with the imploding value of some of the assets, bank cutbacks have many hedge funds hanging on to liquidity by their fingernails.
• Charge it! Asset manager Ameriprise Financial (AMP) will announce today a joint venture with MasterCard (MA) to offer credit cards. Despite a generally rough environment for credit-card lenders, Ameriprise says that for its clientele -- the affluent segment -- the timing "is actually pretty good."
• Foiled. Rio Tinto (RTP) will tell investors this week its aluminum business is worth $20B (£9.9B) more than current estimates, a move aimed at deflecting a £76B takeover bid by BHP Billiton (BHP) that Rio management feels undervalues the company. The increased valuation is based on the rising price of aluminum (from $1.15/pound to $1.40), synergies from its recent Alcan acquisition, and strong global demand fueled by a Chinese construction boom.
• TSMC sees weak Q1. Taiwan Semi (TSM), the world's number-one contract chipmaker, said February sales of $924M jumped 38% Y/Y, but fell 6% M/M due to waning PC and gadget sales. It sees Q1 sales down about 7% from a year ago. "There are no doubts that demand from the U.S. has started slowing down and we are closely watching if things will be getting worse or not," analyst Alex Huang said.
• Wishful thinking? OPEC President Chakib Khelil says oil prices (USO) will remain above $100/barrel for the remainder of 2008, due to geopolitical tensions and market speculation. Khelil was particularly concerned about the Iranian nuclear affair, and an ongoing spat between ExxonMobil (XOM) and Venezuela.
• Private equity ponders Virgin Media. A consortium of U.S. private-equity groups, including Blackstone (BX), Cinven, KKR and Providence Equity, are considering a $6-7.5B ($17-22/share) bid for Virgin Media (VMED) in the hopes of capitalizing on its weak share price. Virgin also owes in the neighborhood of $11B.
• Logitech downplays buyout talk. Logitech (LOGI) CEO Guerrino De Luca says a rumored Microsoft (MSFT) bid for the company makes little sense. "Without competition Logitech would lose the great pressure to innovate," he said, adding a deal would likely trigger antitrust concerns.
• Cheap imitations. Credit Suisse (CS) is introducing a suite of products that will clone the returns of major hedge fund strategies. CS says its alignment with leading hedge strategy academics will give it an advantage over similar funds from Merrill (MER), Goldman (GS), and Deutsche Bank (DB), who recently entered the field. The benefits of hedge fund replication include lower management fees, increased transparency, and no lock-up periods. CS's three clones will mimic directional equity, relative value arbitrage and tactical trading strategies, with fees of 100-120 BP/year.
• Fannie May Fail - Barron's. In a damning exposé of government-sponsored mortgage giant Fannie Mae (FNM), Barron's contends Fannie's balance sheet is "larded with soft assets and understated liabilities that would leave the company ill-equipped to weather a serious financial crisis. And spiraling mortgage defaults and falling home prices could bring a tsunami of credit losses over the next two years that will severely test Fannie's solvency."
• Nationwide Financial gets bid from parent. Nationwide Financial Services (NFS) received a $47.20/share buyout offer from parent company Nationwide Mutual Insurance, a 24.5% premium to its Friday close of $37.93. Nationwide Mutual already owns 66.3% of NFS, and controls 95.2% of its vote. NFS has appointed an independent committee to assess the bid.

Today's Markets

• Most markets in Asia were down Monday. Nikkei -1.96% to 12,532. Hang Seng +0.91% to 22,705. Shanghai -3.59% to 4,146. BSE Sensex -0.32% to 15,924.
• In Europe, markets were flat at midday. FTSE +0.02% to 5,701. CAC -0.22% to 4,608. DAX +0.01% to 6,515.
• U.S. futures are up slightly at 7:40 AM. Dow +0.26% to 11,922. S&P +0.31% to 1,296.75. Nasdaq +0.25% to 1,713.

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Eli Hoffmann

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