Posts from Tuesday Jan 25 2011

The FT Alphaville State of the Union game

Tonight is the State of the Union — a chance for the US to reflect on its past, look to the future, and play drinking games.

If you’re interested in some pre-game reading, then we recommend checking out the following: Read more

China repo rate soars

China’s benchmark short-term money market rate spiked 242bps on Tuesday, its biggest one-day jump, as lenders rushed to secure funds ahead of the lunar new year, the FT reports. The seven-day bond repurchase rate, which on Tuesday closed at a three-year high of 7.69 per cent, often rises in the run-up to the annual spring festival as hundreds of millions of people withdraw cash from the banking system for shopping and travelling from Feb 2 for several days..

Huawei wins block on Motorola-NSN

A US court has granted a request from Huawei, the Chinese telecoms equipment maker, to block temporarily the transfer of certain technology from Motorola to Nokia Siemens Networks, the FT reports. The decision is set to further delay NSN’s $1.2bn acquisition of Motorola Solutions’ wireless telecommunications network business, a deal likely to create a stronger global competitor to Huawei.

Dispute erupts over Stanley Ho assets

A family squabble for one of Asia’s greatest fortunes burst into the open on Tuesday, as lawyers and relatives of Stanley Ho, the Macao casino tycoon, argued over the validity of a controversial share transfer, the FT reports. SJM Holdings, Mr Ho’s casino flagship, said this week that the tycoon had transferred his 32 per cent stake in SJM’s parent company, Sociedade de Turismo de Macau, to the third of his four wives and also to the five children from his second marriage. Mr Ho, who is 89 and in poor health, has had at least 16 children by four wives, setting the stage for a potentially rancorous inheritance battle.

Indian industrialists fear rate rise too far

Monetary policy meetings in India are now met with anguish by the country’s industrialists, reports the FT. A drum beat of seven successive rate rises by the Reserve Bank of India since March has business leaders fretting that monetary tightening will choke off industrial production and knock the economy off its trajectory of 8.5 per cent growth this year. While many of the worries about India’s high inflation surround rising food prices and the hurt they inflict on India’s millions of poor people, industrialists are as concerned about the rising cost of energy and raw materials. Amit Mitra, the secretary-general of the Federation of Indian Chambers of Commerce and Industry, on Tuesday urged the central bank to be prepared to reverse interest rate rises if a slackening of industrial production persisted. In November, it slumped to 2.7 per cent from earlier double-digit performance.

UK economic contraction spooks traders

A shock contraction in UK fourth-quarter GDP rattled markets, but Wall Street found its footing as it hoped for further stimulus from the US president and Federal Reserve, the FT reports. While the UK’s plight reminds investors that the global economy is hardly on a straight upward trajectory, the uplifting effect of US government stimulus is easing the exodus from growth assets. Treasury yields have fallen sharply, while stocks and gold have rebounded ahead of the Federal Reserve’s meeting tomorrow, at which it is expected to hold steady on its easing course.

UK economy runs into bad weather

News of a 0.5 per cent contraction in Britain’s economy was a genuine shock but most serious economists believe that the nation is at little risk of falling back into recession, the FT reports. They cite the Office for National Statistics’ assertion that much of the drop was linked to bad weather. Britain suffered its coldest December in a century. Had it not been for the heavy snow , however, the ONS estimated that output for the fourth quarter would have been “showing a flattish picture”. Even “flattish” would have been a very poor outcome, economists said, pointing out that life is becoming increasingly uncomfortable for the average Briton, even in the absence of a fully fledged downturn.

BlackRock doubles profits with asset growth

BlackRock, the world’s largest money manager, more than doubled earnings in the fourth quarter as rallying markets lifted assets under management, the FT reports. Boosted by the $13.5bn takeover of Barclays Global Investors in late 2009, BlackRock reported earnings well ahead of Wall Street expectations. Net income jumped from $256m in the fourth quarter of 2009 to $657m in the last three months of 2010 as revenues rose from $1.54bn to $2.49bn. Larry Fink, chairman and chief executive of BlackRock, attributed the improvement in operating margins for the year to a combination of the benefits of the BGI acquisition, improved markets and positive investment performance. “The integration is largely behind us,” he said. Net income, adjusted for non-recurring items such as integration costs, rose 77 per cent to $670m from $379m. Adjusted earnings per share rose from $2.39 to $3.42, well ahead of the $2.89 consensus of analyst forecasts.

Obama to endorse spending freeze

President Barack Obama was set to endorse a five-year freeze in discretionary spending by the US government, excluding defence and security, in an attempt to shore up the administration’s credentials on fiscal discipline, the FT reports. White House officials signalled on Tuesday that the move would be part of the president’s annual address to Congress – along with a previously-announced Pentagon plan to save $78bn over the next five years by trimming the projected growth of the defence budget.

Further further reading

For the commute home,

- Fun with interactive graphs: WSJ on US unemployment and Reuters on FOMC hawkeryRead more

The biggish short — subprime student loans

Hello, my name is Steven Eisman.

“Hi Steve, we loved the Big Short. Thanks for your email — yes, let’s grab a coffee and discuss why you’re shorting the for-profit college industry.”*   (*FT Alphaville translation.) Read more

A very messy Ambac lawsuit for JPMorgan

JPMorgan didn’t want this to be made public. You can kind of see why.

Quick background — the bank has been engaged in a legal battle with Ambac since November 2008. The monoline says EMC, Bear Stearns old mortgage-banking arm, misrepresented certain securitised loans that Ambac insured. The lawsuit’s been going back and forth for ages but this month a new court doc was made public. Read more

Hedging Europe, buying EFSF

RTRS-EFSF’s REGLING SAYS ASKED HIMSELF IF BOND WAS TOO CHEAP, GIVEN DEGREE OF OVERSUBSCRIPTION

RTRS-EFSF’S REGLING SAYS WANTED TO BE ON SAFE SIDE WITH PRICING OF BOND Read more

IMF: QE2 is not overheating the EMs

From the IMF’s latest World Economic Outlook (emphasis ours):

At the same time, monetary accommodation needs to continue in the advanced economies. As long as inflation expectations remain anchored and unemployment stays high, this is the right policy from a domestic perspective. Furthermore, it seems to have had an effect: following the news in August that a second round of quantitative easing was imminent, long-term rates fell to new lows in the United States. Although U.S. Treasury yields have since increased, particularly in the last quarter of 2010, this seems primarily attributable to the improving outlook for the U.S. economy, a fact corroborated by the strong performance of equity markets. From an external perspective, however, there is concern that quantitative easing in the United States could result in a flood of capital outflows toward emerging markets. The recent slowdown in capital inflows to emerging markets suggests that such effects may be limited so far. Read more

The silver market’s conflicting signals

Talk to the precious metal bugs, and you’ll soon come across the story that there is a growing disconnect between what’s happening in the futures market and the physical market.

This, they say, is particularly the case for silver, where rumours of retail shortages have been doing the rounds since about the start of the year. Read more

US housing double-dip, continued

The Case-Shiller housing numbers for November are out and — unsurprisingly — they show another steep monthly decline:

Data through November 2010, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show a deceleration in the annual growth rates in 17 of the 20 MSAs and the 10- and 20-City Composites compared to what was reported for October 2010. The 10-City Composite was down 0.4% and the 20-City Composite fell 1.6% from their November 2009 levels. Home prices fell in 19 of 20 MSAs and both Composites in November from their October levels. Read more

Chinese plate-smashing

Another day, another high in Chinese money market rates:

 Read more

Goodfella game theory

File this one under “Economics vs Omerta” — or just a bit of Tuesday morning tomfoolery to make the week pass by a little easier.

Via Slate, here’s a trend we were unaware of related to the mob bust in the US last week (emphasis ours): Read more

Revisiting negative equity and labour mobility

Hands up — looks like we’re gonna have to rethink one of our previous previous assumptions.

Sam Schulhofer-Wohl, a researcher at the Minnesota Fed, scutinised a previous study showing that an increase in negative equity (like what we’ve seen since the end of the housing bubble) harms labour mobility and therefore contributes to higher unemployment — and he found its methodology flawed. Read more

Quant crisis, the much more-moderated sequel?

Quant crisis. [kwont] [krisis] Origin: In August 2007 a host of quant-driven hedge funds experienced losses on the back of the subprime crisis and a series of margin calls. This led to a ripple effect causing losses across various quant strategies and would become known as the ‘quant crisis’ or ‘quant scare’ of 2007.

And might be (sort of) back, according to Morgan Stanley quant strategist Charles Crow. He thinks there’s been some rather significant volatility in quant-driven portfolios in recent weeks, which has shades of late summer 2007. Read more

John Paulson’s real 2010 success: Gold

Paulson & Co may well have made more than $1bn from its long position in Citigroup, but the firm’s really big bet — the one that has seen the firm’s assets swell by around $8.4bn over the past 12 months (before, ahem, fees) — has been gold.

Not that that many external investors have been beneficiaries, of course. A third of Paulson & Co’s $36bn in assets under management may well be denominated in the gold share classes, but a lot of that is Mr Paulson’s — and some of his employees’ – own wealth (employees of the firm now account for 42 per cent of capital). According to the firm’s investor letter: “Approximately 178 of our investors, representing about 31 % of our investors and 38% of our AUM, have elected to be in our Gold Share classes.” Read more

Markets Live transcript 25 Jan 2011

Live markets commentary from FT.com 

A sudden rise in Britain’s debt-to-GDP figures? Blame the banks

Well, this took a while.

From the Office for National Statistics and with a H/T to Ian FraserRead more

Citigroup gains lift Paulson funds

Paulson & Co, the world’s third-largest hedge fund manager, has told clients it has made more than $1bn from its stake in Citigroup over the past 18 months and expects US growth to accelerate this year, the FT reports. Citigroup was the most profitable position for Paulson’s flagship Advantage fund, which like all of the US fund manager’s funds has been highly geared to an upswing in US economic prospects. Paulson’s gains come despite investor fears that its funds have grown too large. “We have proved our ability to perform at current asset levels,” the letter added, arguing that market opportunities are enormous and all of the funds could be much larger.

Come one, come all, to the EFSF bond issue

Here’s a clue to the question; what price Europe, or just the EFSF bond?

Issuer………….EFSF (EFSF – Aaa/AAA/AAA) Read more

UK growth hit by surprise fall

The UK economy contracted by 0.5 per cent in the last quarter of 2010, well below forecasts of 0.5 to 0.7 per cent growth, Reuters reports. The figures throw doubt on the government’s plans to start spending cuts in 2011. While the government’s statistics office said that heavy snow was responsible for some of the decline in growth, it acknowledged that any growth would have been ‘flattish’ even without it. Contraction will also challenge the Bank of England’s ability to raise rates, even as it faces the prospect of inflation well above its 2 per cent target at 4 per cent in 2011. Heavy snow has also obscured economic indicators for the United States during December, the FT reports.

Strong demand for Europe’s bailout bond

More than 500 bids totalling €48bn have been made for the debut €5bn bond issued by the European Financial Stability Facility, reports Reuters. Initial bids of €20bn had already been placed before order books opened on Tuesday, the FT says. The EFSF’s sale has been closely watched as a sign of market interest in common eurozone bonds, which some have mooted as part of the solution to the region’s debt crisis — while investors have been keen to buy up an AAA-rated credit that yields more than German bunds. There’s another good reason for the surge in interest, reports FT Alphaville — the order size bears all the hallmarks of Asia’s giant FX reserve managers.

Mr Yosano’s ‘dreadful dream’

Have we been here before?

Not to be outdone by Japan’s (now former) top government spokesman Yoshito Sengoku, who said earlier this month that the country’s finances were about to fall off a cliff, Kaoru Yosano, Japan’s new minister for economic and fiscal policy, told the FT last week that Japan had hit a “critical point” where it risks losing investor confidence if politicians failed to agree on curbing the ballooning national debt. Read more

India raises rates in inflation fight

One of the G20′s most active monetary policy tighteners has had to raise rates again in response to inflation and overheating, the FT reports. The Reserve Bank of India raised its policy rate by 25bps and brought repo rates to their highest since early 2008, building on six key rate rises during 2010. However, inflation has not fallen as quickly as expected. December’s wholesale price index rose 8.4 per cent, from 7.5 per cent in the previous month. India’s Sensex stock exchange has fallen 6 per cent this year on the inflation concerns. Despite the warning signs flashing over prices forcing households to cut spending, emerging-market consumer stocks are being valued at record highs, Bloomberg says.

SEC investigated over $500m office plan

The Securities and Exchange Commission’s inspector general has launched an investigation into the agency’s estimated $500m in new office leases in Washington to determine if the expenses are justified, a person familiar with the matter has told the FT. The probe comes as the SEC faces the possibility of Congress freezing or reducing its budget. The SEC leased the office space last year and said it needed to provide room for 2,335 new recruits that would be hired if Congress increased the budget. The SEC estimates it needs from 150 to 300 square feet per worker. That would imply it was looking to add space in Washington for 3,600 to 7,300 employees – or at least 300,000 square feet more than needed for its projected recruitment.