Posts from Tuesday Sep 28 2010

Dubai bond sale set to raise up to $1.25bn

The Dubai government was set to raise as much as $1.25bn as its sovereign bond issue moved to price on Wednesday, people aware of the issue said, the FT reports. It was four times subscribed as the book closed in Europe on Tuesday, they said, having elicited interest of $4bn: $2bn for the five-year tranche and another $2bn on the 10-year tranche.

EU differences on deficit sanctions narrow

European leaders on Monday night appeared to narrow their differences over how to prevent European Union members from slipping into economic crisis, with increasing consensus that penalties and fines with significant bite must be imposed on countries that fail to reduce persistently high debt levels, the FT reports. At the same time, officials who participated in the late-night meeting of the EU’s economic governance taskforce said there were still disagreement on how exactly to judge whether a country is in breach of debt guidelines and how automatically the fines should be imposed.

Virtual goods enjoy real-life commercial boom

Spending on virtual goods is booming through sites such as Facebook and iPhone apps even though consumers continue to pinch pennies in the wake of the recession, reports the FT. The total US market size for virtual goods will reach $2.1bn next year, up from $1.6bn this year and $1.1bn in 2009, according to a new report by Inside Network, a market research group providing news and research on Facebook and social gaming.

Junk buying fuels ‘yield chasing’ fears

Retail investors in the US have sharply increased their direct buying of junk bonds in the third quarter of the year, providing evidence of a trend of “yield chasing” that is worrying regulators, reports the FT. Finra, which regulates US securities firms, said the trend was a concern given the risks involved in this part of the corporate bond market. Corporate bond trading activity analysed by Finra shows that the ratio of buying relative to selling of junk bonds by retail investors has jumped in the last quarter. Junk bonds, also called high-yield bonds, are sold by companies with ratings below investment grade, a category which has a higher risk of default.

AOL to acquire Techcrunch blog site

AOL has placed its biggest bet so far in its attempt to rebuild its strategy around online content with the acquisition of the Techcrunch technology blog site for an undisclosed amount, the FT reports. The deal will give AOL, one of the most prominent companies from the first phase of the internet that has since fallen on hard times, control of an outspoken blog that sprung to prominence thanks to its backing of a wave of newer, disruptive internet services.

BP plans return to capital markets

BP is planning to sell $2bn-$3bn in new bonds in a move that marks a return to “business as usual” following the sealing of the oil leak in the Gulf of Mexico, the FT reports. Its long-awaited return to the capital markets comes ahead of Robert Dudley taking over as chief executive of the UK oil group on Friday. The issues, which are expected to include 5-year and 10-year maturities, are expected to be priced later on Tuesday. The spread between the new issues and US Treasuries, the benchmark for debt issuance, is expected to be in the low 200 basis point range, according to people familiar with the situation.

ADB warns on China’s long-term growth

China’s average annual rate of economic growth over the next two decades will fall to little more than half the current level as its ability to sustain huge investment declines, according to the Asian Development Bank, reports the FT. Such a slowdown would have a dramatic effect on China’s place in the world, significantly delaying the moment at which its economy surpasses that of the US as the world’s largest, having overtaken Japan as the second largest earlier this year.

Sport organisers play high-stakes game

There are many people who believe New Delhi’s Commonwealth Games fiasco has dealt a mortal blow to India’s chances of staging the Olympics, but the International Olympic Committee is not among them, the FT reports. When asked if India could host an Olympics, Gilbert Felli, IOC executive director, says: “Yes, why not?” Athletes’ accommodation described as “filthy” and facilities collapsing have been a public relations nightmare for India. But they have also thrown into question the increasing desire of sporting organisations to stage events in large emerging economies.

Japan reacts over rare earths ban

China’s de facto ban on rare-earth exports to Japan imposed in the two countries’ recent diplomatic feud will prompt Tokyo to seek new sources of the strategic minerals, according to Japan’s new economics and fiscal policy minister, reports the FT. In an FT interview, minister of state Banri Kaieda urged China to lift export restrictions “as soon as possible”. Japan meanwhile would try to develop substitutes for their use in high-tech products, he noted, reflecting growing international concern about China’s dominance of production of rare earths, which are used in high-tech products ranging from precision-guided weapons to hybrid cars.

Treasuries in demand as traders bet on Fed

Treasury bonds continue to see new lows in yield – and gold record high prices – as traders, spurred by weak US economic data, bet on further easing action from the Federal Reserve this year, reports the FT. An auction of $35bn of five-year bonds was well bid, seeing their lowest-ever low yield. Ten-year US Treasuries are also on track to end the day at the lowest yield – 2.47 per cent – since January 2009. Meanwhile, stock traders are gambling that if the US Federal Reserve will buy debt to put money to work in the economy, as bond traders seem to believe it will, the move will be good for equities. The S&P 500 index has turned around from an opening decline, to close up 0.5 per cent. The FTSE All-World equity index was up 0.4 per cent, fighting off initial weakness from Asia and Europe and holding an advance of 9 per cent this month. Investors globally are still fretting about possible profit taking into the quarter’s close and old foes such as eurozone fiscal woes and currency spats denude confidence.

US businesses more cautious about recovery

American consumers and business leaders are increasingly cautious about the US economic recovery, battered by persistently high unemployment and slow growth, according to two separate survey results, the FT reports. Consumer confidence, as measured by the Conference Board, tumbled far more than expected this month, from a reading of 53.2 in August to 48.5 in September – its lowest level since February. Respondents in the consumer survey expressed bleaker views of both their present situation and of the future, raising concerns for spending in the forthcoming holiday sales period. Meanwhile, the Business Roundtable economic survey, based on responses from 125 large company chief executives, also pointed to a slowdown in growth, as the business group called for greater certainty from Washington on taxes and business regulation.

Shadow inventory and the housing market

Following a busy week of housing news, S&P has just posted its second quarter shadow inventory update, and the top line isn’t pretty (our emphasis):

The volume of distressed residential mortgage properties in the U.S. continues to remind the market that the fledgling recovery has yet to have a meaningful impact on the housing market. While our estimates for the time it will take to clear the supply of distressed homes on the market, or those that need to be liquidated and re-sold because previous borrowers defaulted, have declined after reaching a peak in mid-2008, the number has been on the rise again since fall of 2009. We estimate that the principal balance of these distressed homes amounts to about $460 billion, representing nearly one-third of the nonagency residential mortgage-backed securities (RMBS) market currently outstanding.

 Read more

100 years of war, inflation, and booms

Our friends at Lex noted recently the prediction by Jeffrey Hirsch, whose annual Stock Traders Almanac is released this week, that the Dow would reach 38,820 by 2025 (it is currently at just above 10,800).

Putting aside the oddly precise nature of this prediction, Lex writes that this isn’t so outlandish: Read more

So QE-asy it hurts

Gold glittering past a nominal record high:

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Gaming Volcker, ongoing

It can get confusing to keep up with how the banks are responding to the Volcker Rule, especially as some stories repeat themselves and others change.

In the case of JP Morgan, we learned in August from the Washington Post that “more than 100 project teams are hard at work trying to anticipate the implications of the new rules and to adjust the firm’s businesses accordingly.” Read more

Market on edge after Apple drops like a stone

News of a big fall in the price of Apple shares at the open (on supposedly no news except, err, this) got the Twittersphere raging about the prospect of a mini flash crash in the making Tuesday:

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Got enough bookrunners there, BP? [updated]

BP’s return to capital markets really is a concerted effort.

According to Bloomberg, the British oil giant has hired no fewer than 10 bookrunners for its $2bn-$3bn debt offering: Read more

‘D Day’ for Anglo Irish

Thursday is ‘D Day’ — D as in debt — for Anglo Irish Bank.

Not only is the Irish government expected to detail the fate of Anglo Irish’s senior and subordinated debt investors, as well as its bail-out cost estimates for the bank — it’s also the first day about €4bn of senior and €1.7bn of Anglo sub-debt will be floating around without a government guarantee. Uncanny timing, that. Read more

Trimtabs on the US lost decade

We were just wondering about what might have scared investors off equities this year.

And so it is that TrimTabs, a US investment research firm, offers us at least a partial explanation on Tuesday. Read more

Equities’ days of future past

You know that whole ‘stocks are dead, long live bonds‘ meme?

Interesting factoid from a Morgan Stanley strategy note on Monday: Read more

The apparent rise of the mini flash crash

Another mysterious ‘mini flash crash’ in global equity markets.

This time it occurred in the shares of Progress Energy. Read more

25 interventions in a one week band

Ben Davies, CEO of gold hedge fund Hinde Capital, made an interesting point on the subject of currency intervention in a recent letter to investors, as picked up by the King World News blog.

He alludes to the writing of Henry Hazlitt, an inflationista who predicted a dismal inflationary future for the world following the collapse of the fixed rate exchange mechanism of Bretton Woods: Read more

The annotated flash crash diagram

Can’t wait for the SEC’s flash crash report?

Then try this alternative, from data firm, Nanex. Read more

Mr Bean was right

Don’t save, spend, Bank of England official Charles Bean advised Britain on Monday, telling Channel 4 News that low interest rates made any other choice rather useless.

‘No problem at all, my dear Bean,’ said Britain. Read more

Markets Live transcript 28 Sep 2010

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Takefuji goes down

Just like one of those TV samurai dramas, the inevitable denouement came quickly and somewhat painfully for troubled Takefuji Corp, Japan’s third-biggest consumer lender.

The company, as predicted by Japanese media on Monday, said it would file for bankruptcy protection on Tuesday with about Y433.6bn ($5.2bn) in debts, after being forced to refund borrowers for overcharged interest, reports BloombergRead more

Goldman Asia chief tipped for step up

Speculation is building that Michael Evans is heading higher in the Goldman hierarchy, according to current and former bank executives, investors and clients interviewed by the FT. Evans now serves as the Hong Kong-based head of Asia operations and a vice-chairman at Goldman. The most public manifestation of Mr Evans’s expanding role came in May when he was appointed to co-chair Goldman’s business standards committee, set up to repair the bank’s reputation with clients and regulators. But even before that appointment, Goldman insiders say Mr Evans had become a regular presence in the bank’s New York headquarters, while also maintaining his management responsibilities in Asia. These people say Mr Evans has been seeking a more senior role in New York.

Blackberry maker launches tablet device

BlackBerry maker Research in Motion is expanding beyond the smartphone to take on Apple’s iPad with its first tablet device – the BlackBerry PlayBook, the FT reports. RIM unveiled the tablet with its seven-inch screen and dual high-definition cameras for video conferencing at its annual developer conference in San Francisco. The device was described by RIM’s CEO as the “first professional tablet” and will target a business audience, according to RCR Unplugged.

Spanish spectres loom in the market

Spanish business daily Expansión reports that the market is expecting Moody’s to downgrade Spain below AAA this week — when it concludes the review it announced back in June. The rating agency has had Spain on AAA since 2001, but both Fitch and Standard & Poor’s have already cut the country to AA. More on FT Alphaville.

Currency wars: soundbite of the week

Every now and then, someone comes along and delivers a neat soundbite that captures the zeitgeist and blitzes both the mainstream media and the blogosphere.

Such is the case of Guido Mantega, economist, politician and Brazil’s finance minister, who, as the FT (and just about everyone else) reports on Tuesday, has warned that an “international currency war” has broken out, as governments around the globe compete to lower their exchange rates to boost competitiveness. Read more