Posts from Tuesday Jul 28 2009

Ambac clings to life (updated)

RBS analyst Tom Jenkins described Ambac as being “on life support” in a note on Tuesday; FT Alphaville tends to agree.

The bond insurer (remember those?) said on Monday that it expected to report that its statutory losses on credit derivatives (read: CDS on CDOs backed by residential mortgages) had increased by $1.6bn in the second quarter – to $4.9bn. Read more

Rosenberg (finally) sees green shoots

Gluskin Sheff’s chief economist and David Rosenberg appeared to be delighted by the rise in the Case-Schiller index of US house prices on Tuesday:


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CDS report: Rally wanes amid negative earnings news

This CDS report was written by Markit’s Gavan Nolan

The rally in credit lost momentum today as earnings news turned negative on both sides of the Atlantic. The Markit iTraxx Europe index widened to 95.5bp, over 3bp wider than yesterday’s close, while the Markit iTraxx Crossover index was 18bp wider at 655bp. Both indices underperformed falling stock markets, unlike the Markit iTraxx HiVol index. It finished slightly wider, and was tighter for most of the day despite nearly all of its constituents widening. Read more

Lex: High-frequency trading

The suspicious thing about financial conspiracy theories is they are all alike….

But it is worth distinguishing between the illegal and the irritating. Frontrunning — or trading ahead of customer orders — is the former. Successfully employing the biggest nerds and the best millisecond-saving technology is not. Markets have always been skewed against retail money, whether information sloshes around an open outcry pit or a high-tech algorithm. Now, however, cheaper technology, plus the disaggregation of traditional exchanges, means HFT is exploding.

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Evil commodities speculators in the dock

The CFTC hearings into the evil commodity speculators have got under way in Washington.  Those testifying on Tuesday include:

Panel One:   Jeff Sprecher, Intercontinental Exchange and Terry Duffy, Chicago Mercantile Exchange     Panel Two:   Todd Petzel, Futures Industry Association; Ben Hirst, Delta Airlines; Laura Campbell, American Public Gas Association; and Sean Cota, Petroleum Marketers Association of America.

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Dragon-king of the outlier events

This is a black swan.

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A vision of trading from 1995

Here’s an interesting vision of investing from 1995 as penned by Peter Bennett, an electronics engineer, designer and developer of information and trading systems for financial exchanges. It was featured in the World Handbook of Stock Exchanges that year. (H/T Herbie Skeete).

While 1995 is not quite the era of Paul Tudor Jones’ heyday — as featured in the Trader — it was still a time when mobiles were big, laptops were rare, and internet connections went gshhhhh grrr rump rump roo  grr gshhh grrr rump rump gshh grr rump grr grrr grrr. Read more

“Goldman Sachs is not a giant vampire squid”

So says Michael Lewis, he of Liar’s Poker fame, but not for the reasons you might think.

From Lewis’s latest Bloomberg column, in which he (lightheartedly) debunks some of the Goldman Sachs rumours currently in circulation: Read more

Accounting is semi-officially exonerated from causing crisis

Phew. That was close.

The Financial Crisis Advisory Group has  come out and said it — accounting rules were not the root cause of the financial crisis. Read more

Lex: BP

The oil giant’s numbers look good at first glance, but upon closer inspection there is still much work to be done.

It all looks fairly rosy, until you peer more closely into the numbers. The challenge that BP faces is common to all oil companies: how to balance its books when oil prices are low, while spending on projects that replenish its reserves and keeping investors happy by maintaining the dividend. To that end, chief executive Tony Hayward wants to make the group cashflow neutral at a $60 oil price. To do that, Mr Hayward has already chopped out an impressive amount of costs — $2bn over the past six months. Even so, he has not yet got BP to where it needs to be.

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Lunch Wrap

On FT Alphaville Tuesday morning,

– BP is safe for now, but demand is in the toilet. Read more

BP results, ‘demand is in the toilet’ edition

From BP’s Q2 results on Tuesday:

Indicator refining margins in the third quarter to date have been lower than in the second quarter and substantially below 2008 levels. Refining availability is expected to remain higher than in 2008, but otherwise the outlook continues to be challenging with high distillate inventories and continuing low demand.

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Asia’s forever blowing bubbles

The warnings have been slow but steady – and now both volume and pace are increasing: asset bubbles are back in Asia.

As the FT notes on Tuesday, China has warned its banks to ensure that unprecedented volumes of new loans are channelled into the real economy and not diverted into equity or real estate markets where officials say fresh asset bubbles are forming. Read more

Markets live transcript 28 Jul 2009

Live markets commentary from 

Safe for now


Compared to the same period last year, BP’s reported daily production jumped 4 per cent to more than 4 million barrels of oil equivalent in the three months to end-June. Also, the $2 billion reduction in cash costs targeted for 2009 as a whole has already been exceeded and a further $1 billion saving is expected over the remainder of the year, the company said today.

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That is some jump in the CMBS delinquency rate:

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IT paranoia

Tokyo – like certain other financial centres – is not short of unemployed expat finance industry types, many of them living off pay-out deals (cushy or otherwise) while they seek new jobs in Japan or elsewhere.

The pay-off  deals  seem to range from rather curmudgeonly (two month’s pay and nothing more); to not-bad (four to six months pay and perhaps some help with rent and/or relocation costs); to downright lavish (six months or more full pay, rent and school fees, relocation costs, and even the services of a recruitment agency). Read more

Who loves hedgies?

Not everyone, clearly.

In fact, the reputation of the alpha-seeking brigade continues to deteriorate, according to the 2009 Financial Markets Integrity Index for the US, compiled by the CFA Institute. Read more

We’re all Mrs Watanabes now

Professional investors would immediately be suspicious of anyone claiming even the lower-end of the monthly returns being promised by sellers of the various off-the-peg algorithmic FX trading systems now being banded about the web.

But this post earlier on FT Alphaville reminded us of a potent factor here:  the gullibility potential associated with currency markets. Read more

Paul Tudor Jones – The Trader

No, this isn’t a spoof but it is very, very funny. According to Dealbreaker, PTJ wanted this documentary, which has gained cult status, with copies of the VHS original changing hands for hundreds of dollars online, pulled from circulation. Indeed, he bought up all the copies he could find.

After watching part one, which can now be found on YouTube, you’ll see why. Read more

GLG goes physical

The news that London-based hedge fund GLG intends to seed an oil production company is interesting on many fronts. For one, as the FT reports, it marks a clear drive for diversification and expansion at a company that currently looks after some $18bn in hedge funds and long-only investments. It also reflects the firm’s efforts to establish itself as an investment institution.

However, from a commodities perspective, it is perhaps also indicative of the fact that unless you have the means to play in the physical market, your competitive edge may be lost to those who can. Currently, Morgan Stanley and Goldman Sachs are by far the largest financial firms active in the physical market via a portfolio of different investments spanning everything from stakeholdings in refineries to shipping companies. Read more

Pensions, searching for their place in the accounting world

What’s this? Now the even the pension trustees have gone all theoretical on market prices.

From the Marathon Club, comprised of trustees and senior executives representing pension schemes with £179bn of assets, and which has submitted a proposal to the International Accounting Standards Board recommending changes to the way pensions are accounted for: Read more

Further reading

Elsewhere on Tuesday,

– Grantham and ‘boring fair price’Read more

Pink picks

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

Analysis: The oilgarchs that were too big to fail
The change in fortune for Russia’s oligarchs reveals as much about the Kremlin’s shifting attitude to the tycoons as it does about how foreign banks are to go about recovering hundreds of billions of dollars in debt. Read more

Snap news

Breaking pre-market news on Tuesday,

– Deutsche Bank posts Q2 net income of €1.1bn — statementRead more

US home sales surge in June

New house sales in the US jumped by 11% in June, fuelling claims that the market has bottomed out after three savage years amid falling prices, low mortgage rates and aggressive government incentives. The monthly rise was the sharpest in nearly nine years, far exceeding economists’ expectations, and followed a revised increase of 2.4% in the previous month. House sales rose to an adjusted annual rate of 384,000, the government said.

GLG to launch oil production venture

GLG Partners, one of the world’s largest hedge fund managers, is planning to launch an oil production venture to be listed in London in autumn. The venture, to be called Lothian, will be seeded by GLG and will use money raised through its flotation, expected to be about $500m, to make strategic investments in oil production assets around the world. If launched, the venture would be the most ambitious equity fundraising in the oil and gas sector for years.

US to divulge detail on short-sellers

US regulators will in coming weeks release more detailed information on short-selling activity as they move to further boost transparency of trading. The SEC said on Monday that aggregate short-selling volumes in shares would be published on a daily basis while information about short-sale transactions in all publicly traded shares would be provided with a one-month delay.

SEC to review ‘flash’ orders

The US SEC on Monday said it was examining “flash” orders – trades made at lightning speeds on electronic systems – after calls by US Democrat senator Charles Schumer to ban the practice. Officials are conducting a review that includes examining flash orders by exchanges and automatic trading systems that disseminate information to select market participants, ‘’potentially disadvantaging investors,’’ said a SEC spokesman.

Delphi lenders prevail in auction

Lenders to Delphi are poised to take control of the bankrupt US auto-parts supplier, scuppering a government-orchestrated $3.6bn deal to sell the company to General Motors and buyout firm Platinum Equity, reports the WSJ. In a bankruptcy auction, Delphi’s lenders forgave more than $3.4bn in debt owned by several investment funds including Elliott Management and Silver Point Capital.