Posts from Friday Jan 21 2011

Further further reading

For the commute home; have a great weekend:

- Jeff Immelt is the latest to join Obama’s bailout boys Read more

Brains, games and automatons

‘But boss, my orbitofrontal cortex made me do it.’

You may want to try that excuse next time you’re in trouble with a bad trade. Read more

Just another Chinese cash crunch

China is overheating, and it might have a wee inflation problem, but no bank liquidity crisis would ensue from compensatory tightening, right?

OK then. Move along, nothing to see here in the one-week repo rate, China’s most unfettered measure of healthy interbank markets (over Shibor): Read more

Bankrupt ideas for states

Is this how it starts?

The New York Times has splashed on whispers of backroom (mainly Republican) Congressional musings on ways for states to declare bankruptcy — an option not currently open to states under federal law. Read more

Why are gilts still going?

We ask, since ten-year gilt yields only just reached an eight-month high on Friday:

 Read more

More on silver backwardation

We promised some comment on the silver backwardation story we did earlier, and now we have some.

The story continues with Friday’s LBMA silver forward rates (SIFO) settling in at negative as far out as 12 months for the second day in a row. So far, everyone in the market we’ve spoken to agrees this is all  unprecedented. Read more

A tale of a two execs (in one chart)

Click to enlarge:

 Read more

From Fed run-offs to super-sized Treasury auctions

From RBC Capital Market’s Michael Cloherty:

As we discussed last week, the Fed is likely to start shrinking its balance sheet by allowing maturing Treasuries to run off as early as the fourth quarter. When the Fed redeems a Treasury, the Fed debits the Treasury’s account at the Fed. The Treasury keeps the majority of its tax collections in bank accounts across the country—when the Fed debits the Treasury account, the Treasury instructs those banks to wire cash to the Treasury account at the Fed, causing the Fed to debit that bank’s reserve account and credit the Treasury account. So, Fed redemptions mean that banks have fewer reserves and the Treasury has less cash. Read more

Leaving the APS [updated]

RBS has moved smartly higher on Friday morning:

 Read more

Markets Live transcript 21 Jan 2011

Live markets commentary from FT.com 

The food price vulnerability index

Behold, the Tilt countries where interest rates are most at risk in a food heavy inflation environment.

No prizes for guessing who comes out on top: Read more

Four to leave Hewlett-Packard board in revamp

Hewlett-Packard added five new directors to its board, giving majority control of the world’s top-selling technology company to people who weren’t involved in the controversial August ousting of chief executive Mark Hurd, the FT reports. Four serving directors will stand down, while new chief executive Léo Apotheker and chairman Ray Lane, who both joined in late September, will be among the eight who remain, the company said on Thursday. The shake-up gives HP distance from the continuing fallout from the departure of Mr Hurd, a hard-driving executive whose resignation knocked $10bn off the company’s market value. “It’s very unusual” said Steve Mader, a director at recruiters Korn/Ferry International. “One of the obvious possibilities is that the decisions around Hurd and some of the subsequent actions were a schism or a factioning on the board”.

Value of carbon trade cybertheft hits €30m

Cyberthieves have stolen as much as €30m in carbon allowances from the European Union’s emissions trading system, authorities said, as exchanges across Europe halted trading on Thursday, the FT reports. Exchanges including ICE Futures Europe, Nasdaq OMX Commodities Europe and London-based LCH.Clearnet stopped trading of emissions contracts, which are central to the bloc’s fight against global warming. “There is no point in denying that this is a pretty big deal,” said Henry Derwent, head of the International Emissions Trading Association in Brussels. The exchanges were reacting to an order by the European Commission, the EU’s executive arm, which on Wednesday ordered spot trading in emissions allowances to be suspended for at least a week due to security breaches.

Wobble over as European traders spy value

Traders were trying to put the “risk” wobble of the past two days behind them, as a more sober assessment of global growth prospects encouraged selective buying of recently battered assets, the FT’s global market review reports. The FTSE All-World index was up 0.1 per cent – held back by a soft showing out of Asia – while commodities were showing signs of stabilising after heavy selling saw stock and raw material benchmarks, such as copper, pull back from cyclical and record highs respectively. Stretched equity market technicals following the recent spurt, a couple of high profile result disappointments and uncertainty about prospects for the Chinese economy had combined to deliver a sharp burst of profit taking. In addition, a major bugbear of the market, the eurozone debt crisis, was going through one of its quiet periods, with the euro up at 2-month highs and “peripheral” bond yields pulling back from their peaks.

FROB!

There a rising interest at the moment in how Spain would be able to get significant recapitalisation for its worst-off banks, the cajas, financed.

Private / Sovereign / Supra-sovereign? Read more

Silver backwardation is here

Something is definitely up with silver, says FT Alphaville. Earlier this week rumours of physical silver shortages were doing the rounds in Europe. But now something stranger has taken place. The silver forward rate — known as SIFO and published daily by the London Bullion Market Association — has over the course of Wednesday and Thursday gone negative. This is very unusual. Read more

China: Unstoppable powerhouse, or ‘more like us’?

Yes it might well be China’s year, or decade – or century, for that matter. But for now, at least, it’s China’s week, with leader Hu Jintao’s visit to the US generating a frenzy of deals and media coverage. And now, figures from Bejing reveal that the economy continues growing at a red-hot pace.

As the FT reports on Friday (emphasis ours): Read more

Further reading

Elsewhere on Friday,

- A people’s economicsRead more

Pink picks

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

Gillian Tett: Lisbon move points to end of risk-free sovereigns
Another week, another bout of angst about sovereign and municipal risk. But as investors fret about Spain and Belgium – or Illinois and California – they should take a close look at a fascinating little development in Lisbon, writes the FT columnist. On Wednesday, the Portuguese debt management agency formally announced that it would start posting collateral (such as cash or government bonds) on derivatives trades that it cuts with banks. This might sound dull and technical, but it carries considerable symbolic and practical significance. Read more

Snap news

Breaking pre-market news on Friday,

- Espírito Santo Financial terminates its contract with Fitch — statementRead more

BHP faces six-month flood disruption

BHP Billiton said that widespread floods in Australia were likely to disrupt its extensive Queensland coal operations for another six months as the world’s biggest miner reported a 24% quarterly decline in coking coal production for the final quarter of 2010, reports the FT. Nearly all the big mining groups operating in Queensland, including Rio Tinto, Peabody, Anglo American and Xstrata, have been hit by heavy rains and flooding that have swamped mines and shut down rail and port infrastructure. BHP said production at its Queensland coal unit had dropped 30% compared with the quarter to end-September, but sales only fell 15% due to “healthy” inventory levels.

Overnight markets: Mixed

Chinese shares on Friday rebounded from a 14-week low after valuations neared their lowest in two years and Asian stocks declined while the euro strengthened and metal prices gained, reports Bloomberg. The Shanghai Composite Index jumped 1.9% climbing from its lowest level since Sept 30. The MSCI Asia-Pacific Index lost 1% as of 1:30pm in Tokyo, while S&P Index futures erased earlier losses. The euro gained to $1.3502 from $1.3473 on Thursday and rose to Y111.99 from Y111.82. Copper added as much as 0.8% in London, snapping a two-day drop.

Earlier, the FT reported that the correction in risky assets may be ending just as soon as it began to build up steam. As of 21:10 on Thursday, the FTSE All-World index was down 1%, paring its steeper losses from earlier when strong growth and inflation data out of China raised the spectre of an interest rate hike in the world’s second largest economy. Read more

US mortgage bonds soar on hopes

The prices of US bonds backed by loans for office blocks, shopping centres and hotels are soaring, in a sign of growing optimism among investors about recovery in the US commercial real estate sector, reports the FT. Commercial mortgage-backed securities (CMBS) plunged when the 2008 recession hit property values across the US and investors panicked about large losses on loans on heavily-indebted real estate ventures. Further losses are still expected this year, but there are signs that the market for commercial real estate will nevertheless stabilise in the coming 12 months. These improved prospects have lured investors to buy new bonds backed by commercial property loans, easing fears that issuers will default because they cannot refinance debt.

General Atlantic buys 20% Kaspersky stake

General Atlantic, the US private equity group, has acquired 20% of Kaspersky Lab as the Russian antivirus software maker aims to expand by acquiring smaller internet security companies, reports the FT. The privately held Kaspersky, valued at about $1bn by GA’s investment, will remain majority-owned by its divorced co-founders, Eugene and Natalya Kaspersky, who set it up in 1997. John Bernstein, GA managing director who is joining Kaspersky’s board, said the company was expected to seek an initial public offering in three to five years.

RBS in talks to quit state protection

The Royal Bank of Scotland and the UK Treasury are examining ways in which the part-nationalised bank could secure an early exit from the costly Asset Protection Scheme – a government-backed insurance scheme to backstop an original portfolio of £280bn of bad or risky assets, reports the FT. People involved in the talks said it was likely that the bank would leave the scheme by the end of this year. Until now Stephen Hester, RBS chief executive, has maintained that 2012 was the earliest possible exit date. The APS, for which RBS pays a £700m-a-year insurance premium, runs indefinitely with a minimum cumulative charge of £2.5bn. The bank’s latest instalment paid this month brings the total cost so far to £2.1bn.

Amazon acquires Lovefilm for £200m

Amazon, the world’s largest online retailer, has acquired Lovefilm, the web-based DVD rental service, for close to £200m ($317m), sealing a long-rumoured deal that sees another top UK dotcom company sold to a US suitor, reports the FT. Lovefilm, with 1.6m subscribers in Europe, had been considering a stock market listing as it seeks to expand its business from mailing DVDs into online delivery. The deal comes as Netflix, the US business whose model Lovefilm has emulated, is preparing to use its digital subscription business as a platform for expansion into Europe and other international markets. Amazon plans to retain the Lovefilm brand and says it has no immediate plans to launch it in the US.

Samsung buys Dutch group

Samsung Electronics has bought a Dutch maker of display technology for e-readers, signalling that the world’s biggest tech company by sales is overcoming a long-held aversion to M&A, reports the FT. The deal to buy Liquavista illustrates Samsung’s strategy shift from making components in-house and its recognition of the need to grow through international acquisitions. Samsung has been notoriously wary of such expansion since its unsuccessful purchase of AST in the late 1990s. The South Korean company was forced to close the US computer-maker after a mass defection of research talent and a string of losses. Liquavista’s display technology is used for devices such as e-readers and mobile phones.

Morgan Stanley defers bonuses

Morgan Stanley has sought to pre-empt new rules capping banks’ cash pay-outs, deferring 60% of employees’ 2010 bonuses, reports the FT. The announcement came as the bank reported a higher-than-expected 88% jump in 4Q profits, despite a fall in fixed income trading revenues. While Morgan Stanley’s 2010 pay-outs may defer more than employees expected, the FT notes the move “reflects the new realities of Wall Street after the financial crisis”. Lex adds that the bank’s CEO James Gorman has made some progress since taking the reins a year ago but warns he has a “busy year ahead”, while the WSJ notes that the results bolster the case for the bank’s push to become a more diversified and less volatile investment house than Goldman Sachs by building wealth management to balance trading.

Page to become Google CEO

Google has ended the unconventional management triumvirate that has led the company over the past decade, elevating co-founder Larry Page to become the first clear head of the internet search giant, reports the FT. The shake-up higlights new competition from Facebook as the web’s most-watched company. Eric Schmidt, who will step aside as CEO and become executive chairman in April, said the three executives had decided to “clarify” their roles “so there’s clear responsibility” at the top. Co-president Sergey Brin will also step back, to work on “special projects”. Schmidt told the FT the changes reflect efforts to speed up decision-making. Analysts said the three-man leadership had been highly successful but had outlived its usefulness. But Lex notes that essentially, “the three men who were running the business before are more or less the same three men who will be running the business now”, while the WSJ adds that “nothing signals that a company is feeling competitive heat more than a change at the top”.

Four to leave HP board in revamp

Hewlett-Packard has added five new directors to its board, giving majority control of the top-selling tech company to people who weren’t involved in the controversial August ousting of chief executive Mark Hurd, reports the FT. Four serving directors will stand down, while new chief executive Léo Apotheker and chairman Ray Lane, who both joined in September, will be among the eight who remain, HP said on Thursday. The shake-up – which is also occurring in executive ranks – is part of HP’s effort to draw a line under continuing fallout from the departure of Hurd, whose resignation knocked $10bn off the company’s market value. Some shareholders have sued, accusing the previous board of wasting assets in granting Hurd severance that could be worth as much as $40m. The WSJ cites sources saying that the SEC has been investigating circumstances surrounding Hurd’s departure.