Posts from Friday Jan 14 2011

Further further reading

For the commute home,

Bank walkaways add to the housing crisis. Read more

Debt ceiling attitudes

If you polled FT Alphaville’s seven bloggers and asked whether we’d like to hire a dedicated group of interns to do our photocopying and fetch coffee and think of great ideas that we could shamelessly steal, the poll would register an overwhelming majority in favour. (We’d like a new puppy for a mascot, too, please — a pug named Muppet, which the interns could feed and clean.)

Unless, that is, the hypothetical poll also included the cost that such privileges would incur, at which point we’d have to politely decline them because we’re cheap the FT is cheap of budget constraints. Read more

China: it is big and it is clever

America, an apology: perhaps we were too quick to worry about the 47 per cent of you that believe China is the world’s foremost economic power.

They may have read this cogent post from Peterson’s Arvind Subramanian, which crunches updated purchasing power parity (PPP) estimates and finds: Read more

BP and Rosneft announce share swap [updated]

Scroll down for updates.

Fresh out of Reuters, via KleinmanRead more

Why this Greek debt junking matters

Q. No matter how big your sovereign bailout fund gets — isn’t it far more important that it’s actually sustainable to refinance its loans?

A. Ask Fitch, which has just become the last of the three big ratings agencies to junk Greece’s credit (it’s now rated B+ BB+). Read more

Charting CPI

US CPI data for December is out, with a 0.1 per cent rise in the core index contrasting with a healthier 0.5 per cent rise in the headline number.

According to the BLS, four-fifths of the increase in the headline number came from a rising gasoline index: Read more

When a country trades just like its banking system

It’s happening in CDS markets.

The below shows Moody’s Analytics’ implied-ratings for countries against those of the countries’ banking systems. You can see that for ‘strong’ sovereigns like Germany, the CDS market’s view of the banking system is pretty far below their sovereign view. Read more

Sneaky Citi, tricksy bailout

It’s November 21, 2008.

Lehman collapsed some nine weeks before and the US government is struggling to contain the fallout. They’ve started Tarp and injected funds into ailing financials, but it’s having little effect. Markets are already trying to sniff out the next weakest bank. Read more

China-Japan analogy du jour

Quite a lot of the Chinese economy, as we know, is terribly addicted to easy credit.

The question, though, is who’s actually going to be made to suffer tightening first? And who can pull the proverbial political strings to get by? Read more

Oil shock-ed

Via Sean Corrigan at Diapason Commodities Management, here’s a chart showing the Continuous Commodities Index (CCI) versus US manufacturing wages:

 Read more

Intel builds a $9bn deathstar to kill the rebels

Perhaps Jim ‘Mad Money’ Cramer is right and chip designer Arm Holdings really is significantly undervalued.

In the wake of Intel’s forecast-busting earnings overnight, shares in the Cambridge-based company charged to their highest level in a decade on Friday: Read more

Markets Live transcript 14 Jan 2011

Live markets commentary from 

An €80bn mega-inyección for Spanish banks?

Wa-hey. Anyone speak Spanish?

Just as the European Central Bank announced that Spanish bank borrowing resumed its upward trajectory last month (€70bn in December, up from €64.5bn in November) El Confidencial is reporting that Spain is preparing a massive capital injection of between €30 and €80bn to clean up the cajas, or local savings banks. Read more

Goldman unveils new crisis losses

Goldman Sachs has revealed details of about $5bn in investment losses suffered during the crisis for the first time this week, in a move that will deepen the debate over companies’ financial disclosures, the FT reports. The figures, issued as part of internal reforms aimed at silencing Goldman’s critics, show that the bank suffered $13.5bn in losses from “investing and lending” with its own funds in 2008. According to City AM, the higher figure had always been present in statements but hard to find.

China raises bank reserve ratios

China’s central bank raised lenders’ reserve requirements within three weeks of boosting benchmark interest rates, Bloomberg reports. Reserve ratios will increase 50 basis points starting January 20, the People’s Bank of China said on its website today. The move underscores, which adds to the Christmas Day interest-rate increase, underscores China’s determination to tame inflation that may trigger social unrest, according to the newswire.

Traders pause to reflect after recent rally

European stocks have opened on the back foot as traders pause for reflection following a rally in risk assets that had taken equity and commodity benchmarks to fresh 2-year highs, and China raised reserve requirement ratios, the FT reports in its rolling global overview. The FTSE Eurofirst 300 is down 0.5 per cent as previously strong sectors such as banks and miners see some selling. The FTSE All-Word equity index is down 0.03 per cent, pulling back slightly from Thursday’s move to the barometer’s best level since August 2008. Industrial metals are a bit softer, even as the dollar weakens.

Intel upbeat after strong earnings

Intel shrugged off concerns that its core PC market is under pressure from tablets and smartphones, reporting strong fourth-quarter earnings and giving an upbeat forecast for this year, the FT says. The world’s biggest chipmaker reported fourth-quarter earnings ahead of Wall Street expectations, with profits of 59 cents a share on revenues of $11.46bn. Analysts expected 53 cents a share on sales of $11.36bn, according to a Bloomberg survey. The New York Times reports Intel sexpects the strong sales gains to continue through the first quarter, forecasting revenue of $11.1bn to $11.9bn.

Eurogeld déjà vu

Euro shorts burned on Thursday — still being roasted on Friday:

 Read more

SEC report may urge fiduciary standards for brokers

The relationship between retail investors and those who advise them may be rewritten after the SEC publishes three studies on the regulation of brokers and advisers, Bloomberg reports. The SEC was asked by Congress in the summer to look at making brokers follow a stricter “fiduciary duty” that puts their clients’ best interests first when selling products. The SEC was also required to evaluate the examination of advisers and consider moving oversight to an outside organisation. Both studies are expected next week, along with a third calling for recommendations about improving public access to background information on advisers.

Pack mentality grips hedge funds

Hedge funds are crowding into more of the same trades, the Wall Street Journal reports, amplifying market swings during crises. Such trading has stoked market jitters in recent months and helped to diminish the impact of corporate fundamentals on stock-market movements, the WSJ says. The paper cites research by MIT researcher and fund manager Andrew W. Lo, which shows funds have become more likely to lose and gain money together over the past five years. There is a roughly 79 per cent chance any randomly selected pair of hedge funds will move up and down in tandem in a given month from 2006 to 2010, compared with 67 per cent from 2001 to 2005.

Vanguard delays three muni bond funds

Vanguard Group, among the largest managers of US retail savings, has delayed plans for three funds specialising in municipal bonds as yields in the market jump to the highest level in two years, the FT reports. FT Alphaville says this is a safe decision, and one that reveals a little bit about the oft-misunderstood muni-bond market. As a post by Bond Buyer’s Dan Seymour explains, muni ETFs have recently been trading below the indexes they were built to track.

US banks to reveal improved earnings

Big US banks are poised to report higher quarterly profits after the release of billions of dollars in reserves set aside for bad loans, the FT reports. Meanwhile, FT Alphaville notes that financials can increase or decrease loan loss reserves using their own judgement on the outlook for their loan portfolios — raising them if they expect more debt to sour, and decreasing, or ‘releasing’ them into earnings, if they expect an improvement. Many of them have been decreasing their reserves at a pace faster their than their write-offs on bad debt are slowing, according to Moody’s data.

SWF support for banks scrutinised

US regulators are probing whether banks and private equity groups that received capital injections from sovereign wealth funds violated US rules on the payment of bribes, the FT reports. People familiar with the situation said the Securities and Exchange Commission had sent letters to a large numbers of lenders and buy-out funds asking them to provide documents related to their deals with sovereign funds. Citigroup and Blackstone were among the letter’s recipients but many others were involved.

Washington starts talks on tax overhaul

The Obama administration will take its first step on Friday towards a possible overhaul of the US corporate tax system, as senior Treasury officials meet top business executives to discuss lowering rates and removing tax breaks, the FT reports. Tim Geithner, US Treasury secretary, will lead talks with a group of 18 chief financial officers – from ExxonMobil and Microsoft to Coca-Cola and Walt Disney – in the latest sign of gathering momentum behind corporate tax reform. However, the Hill, citing a senior White House adviser, says overhauling the nation’s tax codes could take years.

US regulator eyes curbs on speculators

Sweeping plans to curb speculation in raw materials including oil, gold and wheat have been proposed by US regulators, the FT says. The plans come amid fears that surging prices for fuel and agricultural commodities could lead to a food crisis and threaten recovery. But they face an uphill battle to survive after strong opposition even within the regulatory panel that has drawn them up. Platts reports the Commodity Futures Trading Commission voted 4-1 to propose position limits in 28 commodities.

One for the M&A watch list [updated with added confusion]

Here we go again…

Friday’s Daily TelegraphRead more

Geithner questions ‘systemic’ feasibility

Tim Geithner, the Treasury secretary, has questioned the feasibility of identifying financial institutions as “systemically important” in advance of a crisis, just as the regulatory council he chairs is supposed to start doing precisely that, the FT reports. A report by a government watchdog into the rescue of Citigroup quotes Mr Geithner as saying: “What size and mix of business do you classify as systemic? … It depends too much on the state of the world at the time.” The report, from SigTarp, also said Citi is arguably still too big and interconnected to be allowed to fail, according to Reuters.

From bail-ins to flail-in’ CDS markets

Or adventures in unintended consequences, bank burdensharing edition.

Last week’s bail-in proposal for bank debt, from the European Commission, marks a step-change for capital markets — so it’s no wonder there could be plenty of those known unknowns (or even unknown unknowns) to go along with it. Read more

CoCo Killers [updated]

CoCo *pops.* Curtains for CoCos. And so on.

Late on Thursday the Basel Committee released its final (and curt) rules on loss-absorbing bank capital, including the mandate that all Tier 1 and Tier 2 instruments are able either to be written off or converted into equity at the behest of regulators. Read more

Further reading

Elsewhere on Friday,

– Is the Fed so profitable after all? Read more