Posts from Tuesday Jan 11 2011

Truthiness hurts, so go short

Pssst — want to know a juicy stock market rumour?

Are you sure? Read more

European states braced for tax backlash

As the vexed question of bankers’ bonuses – and calls for a repeat bonus tax – dominate the UK news agenda, a rather different bank tax has quietly taken hold across Europe, the FT reports. Implementing a June 2010 European Council agreement that “member states should introduce systems of levies and taxes on financial institutions to ensure fair burden-sharing and to set incentives to contain systemic risk”, 10 countries across the continent have put such levies in motion. As of January 1, most of those were already in place. Designed as a mechanism to repair state coffers dented by the financial crisis, some countries, including Germany and Sweden, have opted to create a hypothecated pot for the levy and use it only to fund future financial crisis measures. The UK is set to generate the most from the scheme – £1.25bn ($1.95bn) this year, rising to more than £2bn next year – ahead of Germany, which expects to raise about €1bn ($1.29bn) a year until a €70bn pot is full. However, it is in Hungary, which unlike the UK and Germany, did not need to bail out its banks, where the tax has controversially been the most punitive.

Biden pledges Afghan support beyond 2014

Joe Biden, the US vice president, has pledged long-term American support for Afghanistan, offering a commitment to help the war-torn nation beyond the 2014 target both countries have set to have Afghans fully in charge of their own security, the FT reports. The day after he arrived in Kabul on an unannounced visit, Mr Biden on Tuesday toured a training academy for Afghan soldiers, had lunch with President Hamid Karzai and said he was confident of the effectiveness of the US’ counterinsurgency strategy. “We’ve largely arrested the Taliban momentum here in some very important areas,” Mr Biden said, speaking alongside Mr Karzai. “But these gains – as you pointed out to me, Mr. President – we know are fragile and reversible.” During the intense Washington debate leading to the dispatch of 30,000 new US troops to Afghanistan last year, Mr Biden argued for a smaller military footprint, more focused on counter-terrorism operations against al-Qaeda and Taliban leaders.

Goldman overhauls reporting structure

Goldman Sachs has moved to address criticisms it put the bank’s interests ahead of its clients, introducing a 39-step “self-improvement” plan that adds layers of oversight while leaving its top management team intact, reports the FT. The programme, presented by Goldman’s business-standards committee to the bank’s 400-plus partners on Monday following an eight-month review, introduces several governance committees, overhauls the bank’s financial reporting structure and shifts some activities between business lines. “This is pretty damn aggressive stuff,” Gerald Corrigan, a Goldman executive and former Federal Reserve Bank of New York president who co-chaired the committee, said. Formed in May, the committee also recommended giving Goldman’s chief executive, Lloyd Blankfein, and president, Gary Cohn, new responsibilities in spearheading the changes.

Eurozone periphery bonds rally

Eurozone peripheral government bonds rallied after successful debt auctions and a reported intervention by the European Central Bank, but investors remained edgy ahead of the key test of the week, reports the FT. Fears that today’s Portuguese bond auction could lead to an escalation of the eurozone crisis failed to undermine demand for Greek, Italian and Dutch bonds on Tuesday. Greece’s first debt sales of the year saw it raise €1.95bn ($2.5bn) in 26-week Treasury bills at yields of 4.9 per cent – only marginally higher than the last sale of similar debt in November. Foreign investors bought 40 per cent in a positive sign for Athens, which has previously relied heavily on domestic institutions to buy its debt. “It is a relief that the yield did not go up much given the volatility and the rise in bond yields in the peripheral bond markets of the eurozone in the last few weeks,” said a senior dealer at a medium-sized bank in Athens, who expected a yield of 5-5.5 per cent. Italy, which has seen its cost of borrowing rise in recent weeks because of the crisis, sold €7bn in 12-month bills with strong demand as order books rose to €11.4bn. The yield was 2.06 per cent, in line with market expectations, and the auction was covered 1.6 times. The Netherlands sold €3.25bn of three-year bonds at an average yield of 1.29 per cent, which was again in line with market expectations amid strong demand.

Dhaka shares fall sparks violence

Bangladeshi riot police used teargas and water cannon to break up violent protests by angry investors on Monday after shares in the Dhaka Stock Exchange dropped almost 9 per cent in less than an hour of trading, prompting authorities to close down the bourse, the FT reports. The Dhaka Stock Exchange has fallen 27 per cent since early December, including a near 7 per cent fall on Sunday. The police intervention came after furious investors vandalised cars and blocked roads around the exchange. The bourse is expected to reopen on Tuesday. The sharp drop in the benchmark index – which had risen about 95 per cent over 2010 until the decline began, attracting millions of first-time investors – is one of the biggest issues facing the government of Sheikh Hasina Wajed, the prime minister.

Brisbane braced for deadly floods

Brisbane in the Australian state of Queensland was braced for its worst floods since 1974 as heavy rains continued to pound deluged creek and river systems to create what local authorities described as an inland tsunami, the FT reports. At least nine people died and close to 70 were still missing after flash flooding in and around the inland city of Toowoomba as the country’s devastating floods entered a lethal phase. Those waters are now heading east towards the coastal city of Brisbane where flood waters are forecast to rise in the next few days.

China’s forex reserves show record leap

China’s foreign exchange reserves jumped by a record $199bn in the last quarter of 2010, taking the total to $2,850bn and underlining the continuing imbalances in the global economy, reports the FT. Already the largest in the world, China’s reserves increased by 18.7 per cent over the course of 2010, including an increase of $194bn in the third quarter. Although China’s monthly trade surplus dropped in December, the continued strong increases in its foreign exchange reserves will bolster the case of critics who are calling for a more rapid appreciation of the renminbi. Currency and trade issues are likely to feature strongly when Hu Jintao makes a state visit to the US next week, amid renewed talk internationally about a “currency war’.

S Korea boosts food supply to fight inflation

South Korea is almost doubling the supply of food staples to stop price rises this month as it joins the swell of nations identifying inflation as the leading macroeconomic risk of 2011, reports the FT. The finance ministry on Tuesday said Seoul would increase the supply of 16 major foodstuffs – including radish, mackerel, cabbage, pork and garlic – to 70 per cent more than the normal level in the run-up to Korean lunar new year holiday on February 2 and 3. While price rises ahead of big festivals are common, the recent increases in some products have been much larger than would typically be expected.

Japan pledges to buy eurozone bonds

Japan has pledged to buy more than 20 per cent of the eurozone’s first ever bond issue, raising expectations that other international investors will support the pioneering fund-raising move and help ease the region’s debt crisis, reports the FT. The European financial stability facility, the €440bn ($570bn) eurozone bail-out fund, is marketing its first bond issue of up to €5bn among investors in Europe, the US and Asia. Bankers close to the deal are confident of attracting support from sovereign wealth funds in China, Norway and the Middle East. Funds raised from the issue, to be priced next week, will be used to back the €85bn bail-out of Ireland. Some investors see the bond issue as a precursor to a common eurozone bond market that could rapidly expand.

Further further reading

For the commute home,

– The Stock Rabbi is back, and he’s not feeling Chinese reverse mergersRead more

Roubini vs Issing on next steps for Germany

Oscar Wilde — ironically, an Irishman faced with a history of difficult bail-outs — famously said that a true friend stabs you in the front.

Angela Merkel, then, may be a little wounded on Tuesday by Nouriel Roubini’s interview in Der Spiegel. The economist, with a little more than 40% conviction, argued that Germany messed up in its bail-out conditions to Ireland, and its taxpayers are now needed to halt the eurozone debt crisis: Read more

Economic forecasting delusions

The Boston Globe has a smart piece that draws on the latest research about one of our favourite topics — the perils of economic forecasting.

Having singled out everyone’s favourite Doomster, Nouriel Roubini, here’s the main point of the article (our emphasis): Read more

FT Tilt, in colour….

…at the (alleged) crossroads of the world.

 Read more

The end of the taxpayer put

Even more on the corporate vs sovereign credit theme, this time from a banking perspective.

RBS has been looking at Commerzbank and its CDS since the EU bail-in proposals were unveiled last week. Read more

Californian cuts, bonds and votes

California is biding its time in the 2011 municipal bond market.

The LA Times’ Money & Company blog on Monday reported that the state is postponing general obligation bond sales due in the spring until fall 2011: Read more

Go north, jaded government bond investor?

No, not north to German bunds. Further north.

Pär Magnusson and Filip Andersson — Scandinavian macro and fixed income analysts at RBS — have a few things they want to get off their chest at the moment, clearly. As they write (emphasis and link ours): Read more

The new look, client-facing, Goldman Sachs

The eagerly awaited Goldman Sachs internal review is out.

As the Wall Street Journal reported, the document was commissioned last year after the bank got into hot water, in the wake of the Fabulous Fab affair, over how it balanced its own interests with those of its investment clients. Read more

Mixed signals from US small businesses

So many other US economic indicators have improved in recent months that we’d be remiss not to report one that worsened.

Small business sentiment is famously stubborn, but even so, the numbers from the latest NFIB survey were disappointing given the positive momentum at the end of last year: Read more

Solving the second-lien sticking point

Remember this chart? It’s old, but still relevant.

 Read more

UK mortgages, and the bank lending blame game

Is Bob Diamond — currently under the kosh at the UK Treasury Select Committee at pixel time — getting the wrong end of the stick? At least in terms of Barclays’ lending habits?

Or, more importantly, are the UK government’s own policies getting in the way of a UK bank lending revival — in terms of new mortgages, anyway? Read more

P-p-p-ick up a Portuguese private placement

Spot the odd one out, Portuguese government medium-term note sales edition — click chart to enlarge:

 Read more

Markets Live transcript 11 Jan 2011

Live markets commentary from 

Arm and Mad Money [updated]

Arm Holdings is in the charge again on Tuesday morning:

 Read more

Eurozone interest-rate hindsight

It’s often said that one of the factors responsible for brewing the current eurozone crisis was the monetary union’s insistence on a converged interest-rate policy.

That is to say, one interest rate for all members — irrespective of whether the rate was more suitable for Germany than say Spain or Ireland. Read more

SEC’s internal watchdog probes top official

The US Securities and Exchange Commission’s internal watchdog is reviewing an allegation that Robert Khuzami, the agency’s top enforcement official, gave preferential treatment to Citigroup execs in the agency’s $75m subprime settlement with the firm in July, Bloomberg says. Inspector General H. David Kotz opened the probe after a request from senator Charles Grassley, who forwarded an unsigned letter making the allegation. A Citi spokesman declined to comment.

Seoul plans US grain trading house

South Korea is planning to set up a state-led grain trading company in Chicago in the latest sign of concern among some governments about the cost and reliability of food supplies, the FT reports. Seoul hopes its trading company could buy up to 30 per cent of Korea’s grain needs by 2020, purchasing directly from US farmers. Reuters says the move, which is led by the state-run Korea Agro-Fisheries Trade Corp will be included in a package of anti-inflation measures set to be announce by the country on Thursday.

Japan promises to buy eurozone bonds

Japan plans to buy eurozone bonds from the European Financial Stability Facility in an attempt to help build confidence in the bailout fund amid intensifying fears that the region’s debt crisis is spreading, the FT says. The EFSF was set up last year and is seen as a landmark for Europe’s bond markets as it will be the first to issue bonds for the eurozone as one entity. Reuters adds that Japan’s finance minister said Tokyo was considering using its euro reserves to buy about 20 percent of the AAA-rated bonds.

Europe stable as Japan promises support

Eurozone sovereign debt angst is subsiding somewhat after Japan added its voice to the chorus supporting the fiscally-strapped bloc, the FT reports in its rolling global markets overview. The FTSE All-World index is up 0.3 per cent, commodities are stronger and “haven” bonds weaker, pushing yields higher, as traders revert back to growth-focused strategies that have dominated since the start of the year. Meanwhile, the euro is higher versus the yen – but little changed against other major crosses

Federal Reserve turns $80.9bn profit

The US Federal Reserve made a record profit of $80.9bn in 2010 and sent $78.4bn to the US Treasury as income poured in from its programme of quantitative easing, the FT reports. The figures show how the financial crisis has turned the Fed into the most profitable bank in history, earning income of $88.1bn in 2010 but paying only $2.7bn in interest and $4.3bn in operating expenses. FT Alphaville notes that last year was a record for profits at the US central bank, topping 2009’s $47.4bn.