Posts from Wednesday Jul 8 2009

CDS report: Investor nerves hurt credit markets

This CDS report was written by Markit’s Gavan Nolan
The nervy start to July continued today ahead of earnings season. Markit credit indices widened, underperforming lacklustre stock markets. The Markit iTraxx Europe index was trading around 124bp, some 6bp (5%) wider than the previous day’s close. Crossover moved out 29bp (3.9%) to 785bp, while HiVol widened to 238bp, 8bp (3.5%) wider than yesterday’s close.

Alcoa is set to open earnings season after the close today. Investors are fearful that the rally in equity and credit markets from March through to May could be reversed if a plethora of downside earnings disappointments follow. A realisation that the global economy is not going to rebound as it did after the internet/telecoms bubble burst in 2000-2001 has weighed on spreads, and bullish investors are hoping that companies can beat low expectations and provide some positive news. Read more

Watanabe on the Esperanto Currency and the “dollar sheen”

Reuters “Summit Notebook” – a blog of anecdotes and reporting from summits around the world – featured some interesting comments from Hiroshi Watanabe, president of the Japan Bank for International Cooperation, on the increasing speculation around the future of the dollar as the global reserve currency.

Mr Watanabe analogised thus at the Reuters Japan Investment Summit, which ended on Wednesday: Read more

Another day, another (alleged) fraud

From Reuters:

NEW YORK , July 8 (Reuters) – Six employees of a retail brokerage surrendered to the FBI in New York on Wednesday as they face charges for a purported $140 million fraud, an official at the FBI said. The brokerage has offices in the United States but many of the defrauded customers were in Britain and New Zealand, said the official, who declined to identify the firm until formal charges are made public. A spokeswoman for the Office of the U.S. Attorney in Manhattan declined comment.

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How to spot hedge fund blow ups

All About Alpha recently spotted a Hedge Fund Implosion Predictor buried away in the last Financial Stability Review from the ECB. Might come in handy for Hectors Sants and colleagues in E14, now that Alistair Darling wants to give the FSA special powers to deal with big hedge fund problems.

Basically, the Predictor relies on “empirical panel logit analysis” — applied to the Lipper TASS hedgie database — to arrive at a set of variables that might point to the  likely liquidation of a hedge fund – something, the ECB notes, that might also be useful in comparing hedge funds with other business entities. Read more

Tabulating financial reform, Darling

Chancellor Alistair Darling’s proposals for financial reform is now available online. A summary:

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Talking Talf

The latest data on the Talf — the US governments plan to kick-start credit by encouraging investors to borrow money from the Fed to invest in bonds backed by car loans, credit cards, etc.  — is rather lacklustre. The total amount borrowed was $5.4bn in July — down from $11.5bn in June and $10.6bn in May.

The programme started in March. Read more

Lex: China loan growth

China is awash with more credit than it knows what to do with, but banks may be storing up trouble.

China’s banking regulator, however, is increasingly fretful, noting on Tuesday that rampant credit growth “poses risks” to the financial system. The warning comes after lenders advanced Rmb5,840bn ($855bn) of new loans in the first five months, almost triple the amount a year earlier. Goldman Sachs expects a blockbuster June — as much as $230bn — as banks pump up their quarterly loan numbers, just as they did in March (to a record $280bn).

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Lunch Wrap

On FT Alphaville Wednesday morning,

– A guest-post by Mohamed El-ErianRead more

Markets live transcript 8 Jul 2009

Live markets commentary from 

Ashes delays start of Markets Live

A later than usual start for FT Alphaville’s daily markets chat on Wednesday, so that the team – well Neil, actually – can watch the first few overs of the 2009 Ashes battle live from the Swalec stadium in Cardiff.

So play will start at 11.15am sharp, when Murphy and Hume will be discussing why the market hasn’t fallen further in the wake of Wall Street’s sharp sell-off overnight, the continued travails of Phorm and an interesting spat between Prudential and a leading City analyst. Read more

Through the keyhole with FT Alphaville

Yep, we have come over all Lloyd Grossman.

The game is to guess whose pad this might be: Read more

Vix vs Vix challenger

Remember the much-maligned fear barometer created by Credit Suisse?

It was meant to be a measure of investor nervousness — but moved practically inversely to the Vix. Read more

The Cold War in high frequency trading

This April 2009 quote from Rick Bookstaber, with its overtones of Cold War mutually-assured destruction, seems eerily prophetic given recent events involving the alleged theft of Goldman Sachs’ proprietary high-frequency trading code by a programmer of Russian origin:

. . . high frequency trading is embroiled in an arms race. And arms races are negative sum games. The arms in this case are not tanks and jets, but computer chips and throughput. But like any arms race, the result is a cycle of spending which leaves everyone in the same relative position, only poorer.

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Guest post: Mohamed El-Erian – “The crisis is morphing again”

Pimco’s chief executive  comments on the suggestion from US presidential adviser Laura Tyson  that America should consider drafting a second stimulus package, since the $787bn plan agreed in February is proving “a bit too small.

Dr. Laura D’Andrea Tyson’s comments at the Nomura Equity Forum in Singapore were attracting considerable market attention on Wednesday, and rightly so. They come at a time when policy indications—actual, expected and perceived—have already become important drivers of relative and absolute valuations in a number of markets. Read more

UK house prices fall

That’s right, 0.5 per cent in June, according to the latest Halifax House Price index.

However, analysts had forecasts a fall of 0.7 per cent and Martin Ellis, Halifax’s housing economist, reckons this decline is further evidence of ‘bottoming out’. Read more

Further reading

Elsewhere on Wednesday,

– Introducing the crime of bankslaughterRead more

Pink picks

Comment, analysis and other offerings from Wednesday’s FT,

FT cartoon Martin Wolf: What India must do if it is to be an affluent country
What will the world economy — indeed, the world — look like after the financial crisis is over? Will this prove to be a mere blip or something more fundamental? Much of the answer will be provided by the performance of the two Asian giants, China and India. Rightly or wrongly, it is widely accepted that China will continue to grow very rapidly. But what is the likely future for India? Read more

Snap news

Breaking pre-market news on Wednesday,

– John Meriwether shuts JWM hedge fund after losses — BloombergRead more

Hu quits G8 trip to tackle Xinjiang crisis

Hu Jintao, the Chinese president, on Wednesday cut short his visit to Italy, where he was planning to attend the annual Group of Eight summit of world leaders, three days after the worst ethnic unrest in China since the Cultural Revolution erupted in the Muslim-dominated Xinjiang autonomous region. Mr Hu, who has yet to comment officially on the crisis, had been expected to play a high profile role in this week’s summit, with China pushing for a bigger voice for developing countries in international monetary policy, the FT said.

Darling to crack down on riskiest banks

Alistair Darling will outline a tough regulatory regime for the financial services industry on Wednesday that would impose heavier capital and liquidity standards on banks that pose the greatest risk to the financial system. The UK chancellor will instruct the FSA to draw up stricter rules for the riskiest banks and financial institutions, but is not contemplating more drastic action to break up the biggest lenders, the FT said.  The new rules will also impose curbs on bankers’ pay, according to the Times, which said banking executives will have their pay linked to long term profitability.

Four Rio Tinto staff detained in China

Four employees of Rio Tinto, the Anglo-Australian mining group, have been detained in China without explanation, raising tensions as the company is locked in tough negotiations over iron ore prices, the FT said. The four workers , reported to be members of Rio’s iron ore sales team, were held for questioning on Sunday. Rio said it “intends to co-operate fully with any investigation the Chinese authorities may wish to undertake and has sought clarification on what has occurred”.

UK slams EU hedge fund rules

A draft European Union law that would subject hedge funds to new regulatory controls needs “major surgery” before Britain can support it, Lord Myners, a UK Treasury minister, said on Tuesday. The EU directive would require many hedge funds and private equity firms to register with regulators and disclose more about themselves and their investments.

Regulator considers US curbs on oil trading

New trading curbs to clamp down on speculation in oil and other commodities are being examined by US regulators in a signal of a tougher approach to oversight of these markets, the FT reported. The CFTC, the US futures regulator, intends to hold hearings to determine whether federal speculative limits should be set on “all commodities of finite supply”, in particular oil, natural gas and other energy commodities.

Libya invested at least $500m with Stanford

The Libyan government invested at least $500m with Sir Allen Stanford, the Texas businessman accused by the US government of operating a $7bn Ponzi scheme, the FT reported, citing court documents. FT Alphaville dubbed the matter – disclosed in a statement by Sir Allen’s girlfriend filed in Houston on Tuesday – the “St John’s-Tripoli nexus“.

AIG loses $4.3bn case against Greenberg

Hank Greenberg, the former chief executive of insurer AIG, prevailed in a high-profile legal battle with his former company after a federal jury ruled in his favour over claims related to a $4.3bn lawsuit, the FT said. The jury ruled that Mr Greenberg’s private investment firm, Starr International Company,  did not breach a trust when it terminated a long-term compensation plan at the insurer four years ago and was not liable for about $4.3bn worth of shares held for that programme. The jury’s verdict is advisory and can still be overturned by the presiding judge.

Code theft could cost Goldman millions

The purported theft of a Goldman Sachs trading platform by Serge Aleynikov threatens to cost it millions of dollars, Reuters reported, citing a court hearing, but so far the bank has not reported damage to its business. If the stolen information, or trading code, is allowed to go to a competitor who can start trading with it, “the bank itself stands lose its entire investment in creating this software to begin with, which is millions upon millions of dollars,” US prosecutor Joseph Facciponte warned at a hearing on Saturday.

Pope condemns capitalism’s ‘failures’

Pope Benedict XVI on Tuesday condemned the “grave deviations and failures” of capitalism exposed by the financial crisis and issued a strong call for a “true world political authority” to oversee a return to ethics in the global economy, the FT reported. The pontiff’s call for stronger government regulation was made in his third and eagerly awaited encyclical, Charity in Truth, which the Vatican chose to issue on the eve of the G8 summit of rich nations being held in Italy.

Bertelsmann forms music duo with KKR

Bertelsmann, the German media group, has launched a new music publishing venture with Kohlberg Kravis Roberts to acquire catalogues of songs with about €250m of financing from the US private equity group, the FT reported. The venture will be formed by Bertelsmann spinning out BMG Rights Management, a collection of songs by about 300 artists mostly left over from the sale of the German group’s share of its music joint venture with Sony last year. It owns songs by Kylie Minogue, Nena, Roy Orbison, Mecano and The Beautiful South.

Recession increases suicide and murder

Unemployment and recession add to the death toll from suicide, murder and heart attacks but cut the number killed in road accidents, according to a study conducted by researchers at Oxford University and the London School of Hygiene and Tropical Medicine. The researchers analysed the effect of economic changes on mortality rates in 26 European countries from 1970 to 2007, and found a 3 per cent increase in unemployment led to rises of about 4 per cent in suicide and 6 per cent in murders but a 4 per cent fall in traffic fatalities. The biggest impact was on deaths from alcohol abuse, which rose 28 per cent.

Overnight markets: A global sell-off in the making

The yen strengthened to a six-week high against the euro and a five-week high against the dollar as Asian stocks fell and Japanese machinery orders unexpectedly declined, Bloomberg reported on Wednesday.  The Nikkei declined for a sixth session and the Hang Seng suffered heavy losses, while the MSCI Asia Pacific Index of regional shares dropped 1.4 per cent.

Asian markets (Wed)
03:50 BST
Nikkei down 175.87 (-1.8%) at 9,471.92
Topix down 16.81 (-1.9%) at 892.32
Hang Seng down 217.97 (-1.22%) at 17,644.30 Read more