Posts from Friday Sep 3 2010

Illusions, opportunity costs, and uneconomists

Time for a bit of Friday fun before you depart for the long (US) weekend.

Have a crack at this word problem (answer further down the post* — no peeking): Read more

Another prop desk folds, this time at Goldman

Bloomberg is reporting that Goldman Sachs is disbanding its Principal Strategies prop trading unit:

*GOLDMAN SACHS SAID TO BE DISBANDING PRINCIPAL STRATEGIES UNIT Read more

What are stock index future curves telling us?

Has anyone else noticed that stock index futures fell into backwardation just after the Lehman crisis?

Well, we for one couldn’t find any commentary on it. Read more

Final thoughts on the payroll numbers

As usual AV readers did a good job of teasing out some of the nuances in Friday’s payroll report, and for more analytical heavy lifting we are outsourcing to Calculated Risk:

The underlying details of the employment report were mixed. The positives: the upward revisions to the June and July reports, a slight increase in hours worked for manufacturing employees (flat for all employees), an increase in hourly wages, and the decrease in the long term unemployed. Other positives include the slight increase in the employment-population ratio and the participation rate. Read more

A Vix curve ball

Things, it seems, are still looking a bit funny in the world of VIX futures.

Pragmatic Capitalism, for example, wondered on Thursday why it was that volatility futures were refusing to revert to the mean. It’s a point that has also been picked up by the Vix and More blog. Read more

Beware the Greeks, though not just yet

Here’s an interesting chart ripped from the CFR Geo-Graphics blog:

 Read more

US non-farm payrolls – down 54,000

US non-farm payrolls fell by 54,000 jobs in August while the unemployment rate remained constant at 9.6 per cent, according to The Bureau of Labor Statistics.

The decline was much less than expected by the market. Read more

The politics of (yen) intervention

With the S&P 500 up nearly 4 per cent in two days, commodities prices firming, better-than-expected economic data, and core bond prices under pressure, some analysts are (already) seeing a rebound in risk appetite. Indeed, if US non-farm payrolls data for August — due later on Friday — reassure markets, as expected, the risk bulls will probably come out in full force.

All the more curious, then, that the “safe-haven currency”, the yen, is still riding strong, down from last week’s 15-year highs of nearly Y83 to the dollar but still hovering around Y84.38 — despite Japan’s latest political turmoil, constant threats of currency intervention by officials and lacklustre economic dataRead more

Markets Live transcript 3 Sep 2010

Live markets commentary from FT.com 

Sovereign default – Unnecessary, Undesirable, and Unlikely

The IMF recently published the final part of its sovereign risk trilogy.

Parts 1 and 2 were dark and quite frightening for investors, but Part 3 “Default in Today’s Advanced Economies: Unnecessary, Undesirable, and Unlikely” was positively sunny. Read more

Argentina gold mine sparks rival bids

Canada’s Goldcorp has launched a C$3.6bn (US$3.4bn) cash-and-stock takeover offer for Andean Resources, the gold miner listed in Sydney and Toronto, trumping a C$3.4bn bid made public only hours earlier by Eldorado Gold, another Canadian miner, reports the FT. Shares in gold miners have been buoyed this year by record prices as investors switched into the precious metal as a haven against turmoil in financial markets. It has also been a busy year for mergers and acquisitions among gold miners, with Newcrest Mining, Australia’s biggest gold miner, recently agreeing to buy compatriot Lihir Gold for A$9.5bn.

Cotton prices surge to 15-year peak

Cotton prices marched to a 15-year high on Thursday, reeling from supply problems and threatening higher clothing prices for consumers, reports the FT. ICE October cotton futures hit 91.80 cents a pound, the highest price for a front-month contract since October 1995. More actively traded ICE December cotton jumped as high as 89.91 cents a pound, up 2.9 per cent on the ICE Futures US exchange. The market moves could hit consumers. VF Corporation, whose brands include North Face outdoor wear, Lee denim and Vans footwear, warned that apparel brands would have to increase prices to offset costs.

Fears grow over global food supply

Russia announced a 12-month extension of its grain export ban on Thursday, raising fears about a return to the food shortages and riots of 2007-08 which spread through developing countries dependent on imports, reports the FT. The announcement by Vladimir Putin came as the UN’s Food and Agriculture Organisation called an emergency meeting to discuss the wheat shortage, and riots in Mozambique left seven dead. The unrest in Maputo, in which 280 people were also injured, followed the government’s decision to raise bread prices by 30 per cent. Police opened fire on demonstrators after thousands turned out to protest against the price hikes, burning tyres and looting food warehouses.

Trading thins ahead of key US jobs data

It’s a Friday at the end of summer, ahead of a long holiday weekend for Wall Street, and with “crucial” US jobs data to come: little wonder then that traders were sitting on their hands, says the FT. The FTSE All-World index was up just 0.1 per cent, Asia-Pacific trading was muted and European bourses have opened marginally higher, reflecting New York’s 0.5 per cent advance overnight. Currencies were becalmed, while there was little action in bonds and commodities. After a good start to September for bulls of risk – the S&P 500 was up 3.9 per cent in two days after some better than expected economic data – investors were clearly reluctant to place additional bets before seeing the outcome of the US non-farm payroll data for August.

BP disaster costs rise to $8bn

BP said on Friday that the cost of responding to its Gulf of Mexico oil spill had risen by almost $2bn over the past month to about $8bn, reports the FT. The UK oil and gas group also said that it was in the process of replacing the blow-out preventer that had failed when the leak from the Macondo well began in April. The well was plugged by a “static kill” operation in August. BP added that the relief well that is being drilled as a final corrective measure was expected to intercept the Macondo well in mid-September, weather conditions permitting.

An impatient market is not a happy market

Andrew Haldane, the Bank of England’s executive director of financial stability, has penned a hugely thoughtful piece about the implications of growing cultural impatience and short-termism on financial markets — and society at large, reports FT Alphaville. In a nutshell, Haldane observes that as people’s preferences get more short-termist in mindset, bad money drives out the good– encouraging volatility in stock-markets and the detachment of fundamentals from asset prices. Another negative implication may also be on GDP.  Read more

Those /important/crucial/vital US jobs figures

Yep it’s another freaking economic indicator. But an important one, says FT Alphaville. US non-farm payrolls. The Reuters consensus forecast is for non-farm payrolls to have declined 100,000 in August – a third consecutive month of losses – and for an unemployment rate of 9.6 per cent. In July the corresponding figures were -131,000 and 9.5 per cent respectively. Bloomberg, is forecasting a slightly larger fall (105,00) and the same jobless rate. However, the market won’t focus on the headline number because that is skewed by end of temporary census jobs. As such everyone will be looking at the private payroll numbers. Read more

Further reading

Elsewhere on Friday,

- Ben Bernanke’s Labor Day reading listRead more

Pink picks

Comment, analysis and other offerings from Friday’s FT:

Gillian Tett: Cautionary tale about exit strategies from 1930s Japan
Who would want to be in the shoes of Fed chairman Ben Bernanke, or for that matter, in those of Jean-Claude Trichet, president of the European Central Bank?, asks the FT’s Gillian Tett. They are grappling with a fiendish dilemma. As concern about a double dip grows, there is rising pressure for more stimulus. But the more addicted western economies become to aid, the harder it will be to implement exit strategies. Read more

Snap news

Breaking pre-market news on Friday:

- Roche launches group-wide business review to “adapt cost structures and accelerate productivity improvements” – statementRead more

Kokusai buys record World Bank bonds

Japanese investors are buying record amounts of bonds sold by the World Bank and state-backed lenders, in a search for higher returns as government debt yields tumble, reports Bloomberg. Kokusai Global Sovereign Open, Asia’s biggest bond fund, boosted holdings of the securities, known as supranational bonds, to an all-time high of 8.2% of its portfolio. MUFJ Asset Management started four funds that invest in the debt and Diam Co is drawing record amounts earmarked for the notes. Japanese investors bought an unprecedented Y2,180bn ($25.8bn) net amount of overseas debt in the week ended Aug 13.

CD&R to buy Univar stake from CVC

Clayton Dubilier & Rice is to buy a 42.5% stake in Univar, the chemicals distribution group, in a deal valuing the company at $4.2bn, reports the FT. The US buy-out group is acquiring the stake from CVC Capital Partners, which took the Dutch-based chemicals group private in a €1.5bn ($1.9bn) deal three years ago and is retaining a 42.5% stake in the company. Univar’s management, led by president and CEO John Zillmer, will keep a stake of about 5%. Goldman Sachs and Parcom Capital will own the rest. DealBook notes that the transaction highlights several key trends in the private equity industry.

Petrobras sets $25bn share issue

Petrobras, Brazil’s national oil company, will announce details on Friday of a share issue which could come as early as this month, as it seeks to raise at least $25bn from minority shareholders, reports the FT. The transaction, one of the largest offerings this year, would help fund Petrobras’s ambitious $224bn capital expenditure plan for 2010 to 2014. But analysts warned that new responsibilities being placed on Petrobras by the Brazilian government could see it returning to capital markets in the near future. The NYT adds that Petrobras earlier agreed to issue $42.5 bn in new stock to the government to win the rights to 5bn barrels of oil in offshore fields.

Eldorado bids $3.2bn for Andean

Eldorado Gold, Canada’s fifth- largest gold producer, offered C$3.4bn ($3.2bn) in stock for Australia’s Andean Resources, which countered that it was in talks for a rival transaction, reports Bloomberg. Eldorado offered 0.310 a share for Andean’s stock, valuing each at C$6.36, or 32% above Andean’s Thursday closing price in Toronto. But Andean said it is “currently in discussions with another party” and expected to make a “major” announcement shortly. Its shares rose 31% on Friday before the stock was halted, while its Toronto-traded stock closed on Thursday at C$4.81. Eldorado closed at C$20.53.

TPG raises $1.2bn in Ping An offering

Newbridge Capital, the Asian unit of US buy-out firm TPG Capital, raised about HK$9.1bn ($1.2bn) selling shares in Ping An Insurance,  China’s second-largest insurer on Thursday, reports Bloomberg.  Newbridge sold about 139m shares at HK$65.30 each. The firm had raised $1.24bn by selling a stake in Ping An four months ago, received when it swapped its investment in Shenzhen Development Bank (SDB) with Ping An in May. FinanceAsia says the move follows news on Wednesday that Ping An will increase its stake in SDB to 52.39% from 29.99% through a deal valued at Rmb29.1bn ($4.32bn).

Burger King approves 3G’s bid

Burger King is set to be taken private for the second time in its history, after the board of the US fast-food chain accepted a $3.25bn bid from 3G Capital, a US investment group backed by Brazilian investors, reports the FT. 3G Capital won the Burger King board’s unanimous approval for its $24-per- share cash takeover bid, valuing the company at $4bn including $750m of assumed debt. JPMorgan and BarCap are providing debt for the deal. Lex notes that for the buy-out industry, “flipping businesses is more profitable than flipping burgers”, while DealJournal wonders what Brazilians “want with the Whopper”,

Overnight markets: Up, just

Traders again added to risky bets on Thursday after a series of supportive US data although the mood was markedly less optimistic than in the previous session’s “melt up”, when better-than-expected Chinese and US factory data powered a wholesale rush into stocks, says the FT’s global market overview.

As of 21:20 BST, the S&P 500 in New York was up 0.9%, aided by confirmation of a revival in M&A following the private equity purchase of Burger King for $4bn. Commodities were generally firmer, and core bonds were again under the cosh, but the yen was moving higher. The FTSE All-World equity index was up 0.7% primarily reflecting Asia’s attempts to play catch-up with Wall Street’s 3% surge on Wednesday. Read more

Bonuses fade as recruitment lure

Investment banks are using far fewer lucrative “guaranteed” bonus packages to attract recruits in response to the global regulatory crackdown on bank pay, reports the FT, citing a closely watched industry report. Guaranteed bonuses, where employees are promised a fixed incentive payment regardless of their performance or the business’s profitability, accounted for about 5% of the bonuses paid out for 2009 at 37 top financial companies surveyed by the Institute of International Finance, the lobby group -  or about half the average of nearly 10% of bonuses for 2008 and 8% for 2007.

RBS to cut 3,500 more jobs

Royal Bank of Scotland is slashing another 3,500 UK jobs, bringing to nearly 27,000 the number cut since Stephen Hester took over as chief executive of the troubled UK bank less than two years ago, reports the FT. The cuts come as part of RBS’s move to rationalise back-office operations, halving to 10 the number of key processing centres. About a third of the cuts are understood to be related to the £1.65bn sale of 318 branches to Santander last month. RBS currently employs about 160,000 people globally. The Telegraph adds that workers’ unions described the latest cuts as a “horror story” for the UK.

HP wins 3Par after Dell concedes

Hewlett-Packard won the battle for US data storage company 3Par on Thursday after rival PC maker Dell balked at raising its offer yet again, the FT reports. 3Par accepted HP’s latest bid of $33 a share, or about $2.4bn, beating Dell’s revised bid of $32 a share, and paid Dell a $72m fee to break their merger agreement. The contest, starting before 3Par accepted a Dell offer at $18 last month, highlights intensifying rivalry between the two top US PC makers as they move into new areas. FTAlphaville asks, what’s so special about 3Par?, while BreakingViews wonders whether Dell’s shareholders are on tranquilisers.