Posts from Thursday Jan 20 2011

“Google Docks”, or, how to generically and pompously write the Schmidt story

Lede: The regency is over. The young princes are all growns up. Marie de’ Medici Schmidt departs.

2nd par: Back in 200X Eric Schmidt was Google’s top search result. But worries that he has hindered the growth of a more diversified, nimble firm have increased. [Insert top line results.] Read more

Obama support boosts Walmart’s expansion plan

Walmart, the largest US retailer by sales, has scored a significant breakthrough in its multiyear campaign to remove political obstacles to further US growth, winning the public endorsement of first lady Michelle Obama for a new food nutrition and health initiative, reports the FT. The effort will see the retailer reformulating its Great Value private label foods to reduce sodium and sugar content, with targets that will increase pressure on other food manufacturers to follow suit. But Walmart also included a commitment to building stores in “underserved communities”, a reference to an urban growth strategy that is facing political opposition from labour unions. While it operates more than 4,000 stores across the US, Walmart has virtually no presence in the major cities of the west coast and north east. The new healthy food drive was announced on Thursday at a community centre in a low-income area of Washington. It was attended by the first lady, who also leads an administration initiative to fight childhood obesity. Mrs Obama said she was “thrilled” about the plan, adding: “I believe this charter is a huge victory for folks all across this country.”

Fears grow that China is overheating

Concerns the Chinese economy is overheating mounted after official figures revealed the economy grew faster than expected at the end of last year and inflation remained above target, reports the FT. Meanwhile, Guangdong added to the fears after China’s biggest provincial economy increased its minimum wage by 18 to 26 per cent, the second big increase in less than a year. The national economy expanded at an annual rate of 9.8 per cent in the final quarter of 2010, and grew 10.3 per cent for the entire year. Consumer price inflation, a growing worry for policymakers, fell to 4.6 per cent in December from a more than two-year high of 5.1 per cent the previous month. However, analysts said the moderation was mostly due to a high base the year before, and that prices would accelerate strongly in the first quarter of this year, complicating efforts to cool the economy without triggering a sharp slowdown. For the whole year, consumer prices rose 3.3 per cent, above Beijing’s target of 3 per cent. Food prices, the main driver of inflation, rose 7.2 per cent for the year.

Japan hits ‘critical point’ on state debt

Japan has hit a “critical point” where it risks losing investor confidence if politicians fail to reach agreement on how to rein in the ballooning national debt, a cabinet minister has warned. “We face a dreadful dream that one day the long-term interest rate might rise,” Kaoru Yosano, the new minister for economic and fiscal policy, told the Financial Times. “So we have to be very careful [to] ensure the credibility of our economy and the credibility of our government.” His stark comments highlight government determination to introduce a sweeping reform of the tax system that would include a hike in the 5 per cent consumption tax.

Volcker takes aim at long-term investments

Paul Volcker, the former Federal Reserve chairman, is encouraging a crackdown on banks’ longer-term principal investments as his plan to prohibit short-term proprietary trading comes closer to implementation, reports the FT. Goldman Sachs’ investment in Facebook is the sort of deal that could be affected if Mr Volcker’s call to curb banks’ longer-term investments is taken up by regulators or Congress. Democratic congressional aides are already examining the issue.

Blackberry filters pornography in Indonesia

Indonesian mobile data providers on Thursday began filtering pornographic content on Blackberry smartphones, a day before a government-imposed deadline to clean up the airwaves in the world’s most populous Muslim-majority nation, the FT reports. Research In Motion, the Canadian maker of Blackberry, said in a statement that its Indonesian internet service providers were implementing technology to meet legal obligations in one of its fastest growing markets. “The technical solution meets the ministry’s stated requirements and is designed to utilise the same standard filter lists provided by the government,” the statement said. “RIM looks forward to continuing our investments in the Indonesian marketplace and to continue supporting the needs of our customers.” A spokesman declined to give technical details about how the system would work or how many million Indonesian subscribers would be affected.

Hu hails creation of 14m global jobs

Hu Jintao, China’s president, defended Beijing’s currency policy , telling a business audience in Washington that the Chinese economy had helped create 14m jobs around the world through its growing imports, the FT reports. Speaking on Thursday after US congressional leaders pressed complaints about the Chinese currency being undervalued, Mr Hu also said that the export of “quality and inexpensive” products had saved US consumers $600bn, although he did not specify over what time period. After President Barack Obama stressed on Wednesday the role that the US military presence had played in underpinning prosperity in Asia, Mr Hu said that the two countries should co-operate more closely in the region.

Further further reading

For the commute home, or while you’re waiting for Larry Summers to find you a job,

- The most overvalued currency in the world. Read more

Brics flip-floppery flimflammery

A tilt of the hat to our old friends for passing along this chart and commentary from Citigroup:

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Uncertainty and capital controls

Worries about capital flows and the potential side effects of poorly designed capital controls (trade wars, market inefficiencies and distortions) are all the rage these days.

But some economists are sceptical (here’s one) as to whether capital controls even work, or if the market — in the form of investors using fancy bank-contrived derivatives — will simply find a way around them. Perhaps they’re inconvenient but ineffective? Read more

Macabre Mark Twain mathematics

“The Rumors of my Death Have Been Greatly Exaggerated.”

The Wall Street Journal has a further news on Thursday from the grisly world of life settlements. These are transactions where a life insurance policy owner sells their policy, usually via a broker, to “life settlement providers”. These providers may then disaggregate and re-package the policies to sell them to investor clients who take on premium risk in exchange for rights to the death benefits. Read more

Diamonds are forever

That’s the performance of Petra Diamonds over the past year. Read more

Outlook negativity, charted

From Fitch Ratings’ just-published Global Credit Outlook:

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In pursuit of 475,500 stolen European Union Allowances

If you thought illiquid European sovereign markets weren’t enough of a problem — time now to familiarise yourselves with the latest trading quagmire to hit Europe.

On Wednesday, the European Union was forced to suspend transfers of its carbon units, known as European Union Allowances (EUAs), after it transpired that yet more contracts had been stolen from national registry accounts. The Czech Republic’s, in this case. Read more

The Fed can’t go bankrupt. Anymore.

There’s been much debate about the possibility of the US central bank going broke.

Forget it. But not because of the Federal Reserve’s fiscal position, per se. Read more

When Spanish bank property losses go Irish

At what point does Spain’s banking crisis look as bad as Ireland’s?

At what point do solutions to that crisis look as bad as Ireland’s? Read more

From the desk of Jean-Claude Trichet…

… to the desk of BNP chairman and European Parliament member, Nick Griffin:

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The FTSE 100 global growth index

Thursday’s price action in London:

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Markets Live transcript 20 Jan 2011

Live markets commentary from FT.com 

Smartphones aid Sony Ericsson’s return to profit

Sony Ericsson returned to profit in 2010 on the back of its decision to focus on making smartphones using Google’s Android mobile operating system, the FT reports. However, Sony Ericsson’s fourth-quarter results for 2010 on Thursday fell short of expectations, and underlined the challenges the company faces to compete with rivals led by Apple, Research in Motion and HTC. Sony Ericsson admitted its fourth-quarter shipments were hurt by a lack of new product launches. The joint venture between Japan’s Sony and Sweden’s Ericsson reported net income of €90m ($121.2m) for 2010, compared with losses of €836m in 2009 and €73m in 2008.

Hackers cloud EU emissions trading move

In what is believed to have been the worst cyber attack on a national carbon permit registry yet, allowances worth about €7m were swiped from an account in the Czech Republic on Wednesday, the FT reports.  The European Commission reacted by suspending trading for at least a week, or possibly longer. The extent of the delay will depend, in part, on how long it takes the Commission and EU member states, which control the registries, to agree security fixes. The suspension comes after the recent disclosure of abuse in Germany, where the scheme was exploited to avoid value-added taxes and news of a mishap in Hungary, in which used allowances were reissued. Even if trading resumes quickly, the episode is likely to undermine further a system that has long struggled to live up to policymakers’ visions.

Fasten your seatbelt

EasyJet shares hit some turbulence on Thursday morning:

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Fears of slowing growth hold back investors

Traders were tackling a long-anticipated correction in risk assets on Thursday, the FT report. The FTSE All-World index was down 0.5 per cent, commodities were weaker and the dollar stronger. Disappointing results from Goldman Sachs and a lack of follow-through from barnstorming Apple earnings had battered the banking and tech sectors on Wall Street on Wednesday. This precipitated a widespread bout of selling as investors locked in profits following moves in commodities and stocks to some record and cyclical highs. The sense of vertigo was exacerbated by strong growth and inflation data out of China on Thursday that has once again raised fears that Beijing will need to tread forcefully on the monetary brake – a strategy that could damage traction in the world’s second biggest economy. Shanghai slumped 3 per cent.

China data fuel overheating fears

China’s economy expanded faster than expected at the end of last year adding to concerns about overheating and prompting expectations of further monetary tightening in the coming months, the FT reports. Fourth-quarter GDP growth rose to 9.8 per cent, beating expectations, with GDP growth for the year at 10.3 per cent, up 1.1 percentage points from 2009. The figures also confirm that China surpassed Japan for the first time last year to become the world’s second-largest economy after the US. Annual consumer price inflation, a key headache for policymakers, fell back to 4.6 per cent in December, from a 28-month high of 5.1 per cent in November, but analysts said inflationary pressures remained and prices were expected to rebound in the first quarter, complicating the government’s efforts to cool the economy without triggering a sharp slowdown.

Fear and apprehension: Rudolf Elmer edition

No, WikiLeaks is not going to go away, reports FT Alphaville. The saga over leaked documents on the whistleblowing website has heated up as bets are now being taken on which celebrities, business executives and prominent politicians will be revealed as tax evaders in the promised WikiLeaks data dump of more than 2,000 names from the files of Swiss private banker-turned whistleblower Rudolf Elmer. Once again, the Swiss authorities are finding that their efforts to rein in Elmer are about as effective as their attempts to censure WikiLeaks founder Julian Assange. Read more

Further reading

Elsewhere on Thursday,

- Morgan Stanley’s earnings: 4 themes to watch on Thursday. Read more

Pink picks

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

Anat Admati: Dividends can wait until banks are stronger
American banks, encouraged by good earnings, are itching to “return capital” to shareholders. The US Federal Reserve is expected to allow dividend increases for many banks soon. This action is misguided, says Admati, professor of finance and economics at Stanford University. It puts the needs of bankers and their shareholders ahead of those of the economy. Paying dividends helps banks maintain excessive leverage. A typical bank funds over 95 per cent of its investments with debt and less than 5 per cent with equity. Our financial system would work better if banks funded 15 per cent or even 30 per cent of their assets with equity. Read more

Snap news

Breaking pre-market news on Thursday,

- Man Group suffers single redemption of over $1bn — statementRead more

Overnight markets: Down

Asian stocks fell the most since November on Thursday, after Goldman Sachs’ profit failed to beat estimates and Chinese economic data fanned concern that monetary policy will be tightened, reports Bloomberg. A gauge of regional bond risk had its biggest increase in 10 days and the dollar strengthened.

The MSCI Asia Pacific Index retreated from a seven-month high, sliding 1.2% to 138.87 as of 2:10pm in Tokyo. The dollar advanced against 12 of 16 major currencies, while S&P500 Index futures crept up 0.1% after their biggest loss in almost two months. The Shanghai Composite Index dropped 1.3% pacing declines among Asia’s benchmark stock indexes. Read more

Ex-Bear trader pleads guilty

A former Bear Stearns hedge fund trader pleaded guilty on Wednesday to US federal criminal charges in connection with the Galleon insider trading probe but is not co-operating with the government, reports the FT. Danielle Chiesi, 45, a former employee of New Castle Funds, once part of Bear Stearns Asset Management, pleaded guilty to three counts of conspiracy to commit securities fraud for passing inside information about tech companies to hedge funds and others. In a plea-bargain with the government, Chiesi and prosecutors agreed to a sentencing range of 37 to 46 months, at the judge’s discretion. A sentencing date was set for May 13.