Posts from Friday Sep 17 2010

Housing preview

You already know about the FOMC meeting meeting on September 21. Courtesy of Credit Suisse strategists, here is a quick preview of other things to watch for next week:

The majority of data next week predominantly focuses on the housing market, with the NAHB Housing Market Index, Housing Starts, and Existing Home Sales. We think weakness in housing starts will likely persist, and our estimate is slightly lower than Street consensus. While fundamentals for housing demand are poor, our estimate for Existing Home Sales suggests a slight rebound from the previous month, which we attribute primarily to technical factors. Read more

Why does everyone hate Tarp?

Ahead of Tarp’s expiration on October 3, a number of commentators and bloggers this week have been discussing its failure — not the failure of its performance, but of its public image to reflect its performance.

This is not a trivial issue. The legacy Tarp leaves behind could influence the constraints on the government to act similarly in the next financial crisis. Depending on your preferences, that might be good or bad, but it does matter. Read more

A year in the life of sovereign CDS

With Ireland spreads widening on Friday, it’s an apt time to turn to Fitch’s latest edition of its annual survey of credit derivative traders.

Not least because it offers some revealing insights on how sovereign CDS contracts are actually used in the market. Or at least, on bank desks: Read more

An Irish covered-bond warning

This is why Barclays Capital’s warning over Ireland’s medium-term debt sustainability matters. Note that phrasing. Ireland will not be going to the IMF tomorrow — but there’s more uncertainty in the next few years.

Uncertainty over how much is left to support Irish banks, that is — Anglo Irish above all, even as it faces winding down. Read more

Inflation offers no excuses

The August consumer inflation numbers for the US have arrived, and they look a lot like July’s:

 Read more

Dear Paulson investor… et al

Boing. This month, through to the 10th:

Paulson Advantage +5.03%
Paulson Advantage Plus +7.5%
 Read more

When Irish spreads are widening, redux

From the annals of great Reuters flashes:


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Markets Live transcript 17 Sep 2010

Live markets commentary from 

China, 1789 and potash

What caused the 1973 spike in oil prices? The Opec embargo?

Wrong, according to SocGen’s Dylan Grice — who reckons it was merely the trigger. The cause was actually structural: a rapid surge in the import needs of the USA: Read more

LG Electronics replaces chief executive

The chief executive of LG Electronics, the world’s third-largest mobile phone maker, is stepping down to take responsibility for continuing losses at the South Korean company’s troubled handset business, which has struggled to catch up with rivals in the fast-growing smartphone market, the FT reports. The management change mirrors those made at Nokia recently, spelling out the disruptions brought to the market by Apple’s iPhone and Google Android.

Can Potash corral Chinese suitors?

PotashCorp is trying to form a consortium of Chinese investors to stave off BHP Billiton’s hostile takeover, the Globe & Mail reported on Thursday — though it’s really not clear that even this arrangement could stump up the kind of cash that could defeat BHP, FT Alphaville writes. Chinese chemicals giant Sinochem is probing parties interested in financing a deal, but even a Chinese-led bid would have to raise $25bn as part of a likely $50bn offer to beat BHP. And that kind of money just isn’t looking credible for whatever ragtag army PotashCorp is assembling.

Capital rules to toughen by a third

Expect Basel’s new bank capital rules to be one-third tougher once national regulators get their hands on them, the FT reports. The full impact of the new global bank capital rules announced at the weekend is likely to be 30 per cent tougher than the headline ratio suggests, according to regulators and industry participants who have studied private banking data. The data suggest the real impact of the change could be equivalent to raising the minimum capital requirement from 2 per cent to 10 per cent for many banks, once deductions are made by regulators for certain items like tax credits and minority investments.

J&J and Crucell in buyout talks

Johnson & Johnson is looking to buy up Dutch biotech company Crucell in a $2.3bn deal, Reuters says. The move offers a 58 per cent premium on the closing price for Crucell on Thursday — which, while not the most expensive offer that could have been made, should be enough to see off any challengers from Europe, analysts reckon. J&J already had a strong (17.9 per cent) stake in Crucell — and is keen to secure its vaccines business, the WSJ reports.

They think it is all over…

… it is now.

Well, sort of. Read more

Geithner makes G20 threat on renminbi

Treasury Secretary Tim Geithner promised Congress that he would use the next G20 summit to put pressure on China to let the renminbi appreciate, Reuters reports. But during his appearance in front of Senate and House of Representatives committees on Thursday, Mr Geithner stopped short of promising to impose any of the aggressive legal or administrative measures demanded by US lawmakers, the FT adds, including legislation to slap duties on imports deemed to have been subsidised by currency manipulation. At least US observers can look to Japan’s recent FX intervention for lessons, the FT’s Gillian Tett says — but they should be warned that the problem won’t be solved until Chinese banks are far more liberalised than they are now.

Desperately seeking income

In common with many investors, pension funds have a problem, which can be summed up in the following two graphics from UBS:

 Read more

Hedge funds hit the reboot button

Who would invest in a hedge fund manager washed out by the crisis? More people than you’d think, says the NYT, noting a trend towards new hedge funds being set up on the ashes of old ones — and attracting legacy investors to do it. But many new funds have to agree to make up past losses before a legacy investor agrees to pay up fees again, reflecting the difficulties facing hedge funds after investor withdrawals of nearly $320bn since the crisis began in 2007. Some funds also have to commit to changing and improving their trading strategies. That may be a blessing in disguise — even some large names were caught out by Japan’s recent intervention in the yen, the FT reports.

No sovereign is safe

Some consolatory reading for the GreekIrish… and Portuguese finance ministers on Friday. Citigroup chief economist Willem Buiter has taken a long hard look at other developed sovereigns — and has used the opportunity to remind that no sovereign is safe.

It’s billed as a response to a recent IMF paper arguing that default (in the eurozone in particular) would be ‘unnecessary, undesirable and unlikely’. Read more

Banks brace for further bad news

Big US banks are nearing the end of another disappointing quarter for their trading businesses that has deepened fears over job losses on Wall Street, according to the FT. The first two weeks of September failed to deliver a meaningful pick-up in trading activity on markets, hitting bank profits at a time when they are already under pressure from a sluggish economy. A surge in bond market volume, as measured by Finra’s Trace data, has not materialised, while equities trading has slowed since late August. No better time than to push more regulatory supervisors into banks’ main offices as the race to write Dodd-Frank regulations heats up, writes the anonymous author of Economics of Contempt.

Oracle earnings calm the market

Oracle eased anxieties in the technology sector with forecast-beating first-quarter earnings as its software business grew strongly in all regions and its hardware arm grew faster than expected, the FT reports. Oracle’s earnings contrast with Intel’s profit warning three weeks ago, which foresaw a $500m shortfall in sales. Oracle’s reported software sales leapt 25 per cent to $1.3bn, beating analyst forecasts by some margin, Reuters reports. Blackberry maker Research in Motion also surprised the market with superior sales, according to Bloomberg.

Leveraged loans gear up again

The leveraged-loan market has climbed back from its collapse during the crisis, recording its busiest year since 2008 as investors chase yield, reports the WSJ. A quarter of issuance is now based around leveraged buyouts rather than refinancing old loans — while more companies are using the debt to pay dividends. Investors are however resisting dividend strategies, indicating the market isn’t as bubble-prone as before the crisis. Maybe, says FT Alphaville; investors would do better to focus on the $550bn of leveraged loans that will have to be refinanced in 2013 and 2014.

PotashCorp MBO, or the ‘white platypus’ solution?

One “can’t help but marvel at the convolution of the bid being assembled for Potash Corp of Saskatchewan,” notes DealJournal, citing a report in Canada’s Globe and Mail newspaper on moves to assemble a Chinese-led consortium “with touches of Canadiana” to buy PotashCorp and foil BHP Billiton’s $38.6bn hostile bid.

The plan being considered, according to the newspaper’s unidentified sources, would include significant capital from a Chinese resource company or investment fund, “which would then be combined with smaller contributions from international sovereign wealth funds and possibly Canadian financial players such as pension funds. Strategic partners such as rival potash producer Mosaic Co could also be part of the consortium”. Read more

Brent’s got its problems too

We’ve documented the problems associated with the Nymex WTI crude contract regarding the onset of contango and Cushing syndrome in the US .

But as the CME Group — owner of the Nymex — has pointed out to us (in defence), it’s not like the world’s other global benchmark traded on the rival ICE exchange, Brent crude, doesn’t suffer from its own unique issues too. Read more

Further reading

Elsewhere on Friday,

– The 10 biggest myths about goldRead more

Pink picks

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

Martin Wolf: The risks of a premature tightening
There are risks to cutting the UK’s fiscal deficit too slowly. However there are also risks in cutting it too fast, the FT columnist writes. Similarly, while there are risks in not having a credible plan, there are also huge risks in having an inflexible one. The UK needs an adaptable plan for fiscal cuts, one that takes account of the huge uncertainties that result from the fragility of the private sector. Consider what we do not know — how big an impact another slowdown would have on potential output; and how the private sector will respond to the fiscal tightening. Read more

Snap news

Breaking pre-market news on Friday;

– Johnson & Johnson in talks over €24.75 per share offer for Crucell — statementRead more

Potash eyeing ‘China-led buyout’

A Chinese-led consortium “with touches of Canadiana” is being mobilised to buy Potash Corp, reports Reuters, citing Canada’s Globe and Mail newspaper. The potential deal presents what bankers see as the most likely scenario yet for a rival bid for one of the last great jewels of Canadian resources. The Globe and Mail said PotashCorp, which is fending off a $39bn takeover bid from BHP Billiton, is trying to stitch together a consortium that would also include sovereign wealth funds and perhaps Canadian pension funds in a management buyout. PotashCorp has been seeking a white knight to block BHP since the miner launched its bid a month ago.

ACS bids for control of Hochtief

ACS, the Spanish construction group, has made a lowball offer for German rival Hochtief in a move that will enable ACS to increase its stake above 50%  and globalise its Europe-centred business, reports the FT. The bid is likely to be rejected by most shareholders but will enable ACS to buy further shares on the market without having to make another full takeover offer. ACS bought into Hochtief three years ago and owns a 29.98% stake. Under German rules, a company has to make a mandatory offer for all shares only at the time it crosses a 30% threshold.

Overnight markets: Up

Asian shares were on the rise on Friday led by technology plays, after Research In Motion and Oracle reported better-than-expected earnings, while Japanese exporters extended gains on the weaker yen, reports the FT.

As of 03:05BST on Friday, the MSCI Asia Pacific Index was up 0.5%, advancing for a third week and up 1.7% on this week. Japan’s Nikkei 225 was up 0.6% as the yen remained weaker against the dollar at around Y85.71 following Tokyo’s surprise currency intervention on Wednesday. Read more

HP nears decision on Hurd successor

Hewlett-Packard’s board is nearing a decision on a successor to Mark Hurd as chief executive officer, and is leaning toward picking an internal candidate, reports Bloomberg, citing a person familiar with the matter. The short list includes Vyomesh Joshi, who runs HP’s printer business; Todd Bradley, head of the personal-computer division; Dave Donatelli, who runs the storage and server unit; Tom Hogan, executive vice president of enterprise sales and marketing; and Ann Livermore, executive vice president of the enterprise business, said the person.