Posts from Thursday Jan 27 2011

LinkedIn files

With a hat tip to everyone in our Twitter stream, here’s a link to the S-1 and an excerpt from the announcement on the LinkedIn blog:

LinkedIn Corporation announced today that it has filed a registration statement with the Securities and Exchange Commission for a proposed initial public offering of its Class A common stock. The number of shares to be offered and the price range for the offering have not yet been determined. A portion of the shares will be issued and sold by LinkedIn, and a portion will be sold by certain stockholders of LinkedIn. Read more

Moody’s Aaa-rated American journey

Moody’s served up a cocktail of existential angst and sovereign debt analysis on Thursday, in the form of a Special Comment justifying the US’s continued Aaa rating (subscription required).

The verdict — contortion and a stern whisper for the US to get its act together, or else. (If this sounds familiar, it is.) From the report, emphasis ours: Read more

Australia introduces one-off ‘flood tax’

Julia Gillard, Australia’s prime minister, has announced a one-off tax levy, a raft of spending cuts and deferred spending on infrastructure projects to meet the estimated A$5.6bn ($5.6bn) cost from the nation’s flood crisis, the FT reports. The floods have been described as the worst natural disaster in Australia’s history and have hit the north eastern state of Queensland, one of the nation’s two mining boom states, particularly hard. The government said the massive rebuilding programme would cover road, rail and port facilities. It said it will boost its skilled migrant workforce intake and provide additional incentives to the unemployed to help with the recovery efforts. Ms Gillard defied those who said the government should take on additional debt by saying the country was in a strong position to pay for the rebuilding as the economy continued to grow.

US crisis inquiry points finger

The Financial Crisis Inquiry Commission found the 2008 market turmoil to be “avoidable” in its long-awaited report but that “captains of finance and the public stewards of our financial system” had failed to grasp the build-up of risk, the FT reports. In more than 500 pages, the first official government report into the financial crisis cast blame widely – accusing the Federal Reserve of having “neglected its mission” by not piercing the housing bubble, while finding that Goldman Sachs had understated its benefit from the government bail-out of AIG.

Goverments stockpile food staples

Governments across the developing world are stockpiling food staples in an attempt to contain panic buying, inflation and social unrest, the FT reports. But the hoarding is driving agricultural commodity prices even higher. The cost of wheat, the world’s most important staple, reached a fresh two-and-a-half-year high on Thursday, after countries from Algeria to Saudi Arabia announced extraordinary purchases. High food prices have been a contributing factor to the recent wave of social unrest across North Africa and the Middle East. In Algeria earlier this month, young rioters chanted “Bring us sugar!” The cost of the sweetener in the wholesale market is at its highest in 30 years. Earlier this week, Algeria bought 800,000 tonnes of wheat – much more than usual – and Saudi Arabia announced plans to double the size of its wheat stockpile.

Yen slumps after S&P cuts Japan rating

The yen is slumping after S&P downgraded Japan’s credit rating, reports the FT. But the S&P 500 on Wall Street has breached 1,300 for the first time since August 2008 as investors remain generally enamoured of the ongoing global earnings season. The FTSE All-World equity index is up 0.2 per as traders dismiss worries over Japan, some weak US durable goods and jobs data and continued political turmoil in parts of the Arab world, where the Cairo stock market has slumped 11 per cent. Overriding these issues is the regular flow of mostly upbeat earnings news – strong results from Caterpillar on Thursday exemplify the trend. A better showing for the Shanghai market, which has been under pressure of late, is also helping the mood. The S&P 500 in New York is currently up 0.2 per cent at 1,299 after briefly trading above 1,300. Sentiment is being supported by confirmation overnight from the US Federal Reserve that it would continue with its controversial $600bn bond purchase programme to aid the economy, though it only slightly upgraded its growth outlook.

ElBaradei returns to join Egypt protests

Mohamed ElBaradei, the Nobel laureate and reform advocate, warned Egypt’s president that the “barrier of fear” had been broken as he returned to Cairo ahead of renewed protests against Hosni Mubarak’s 30-year rule, the FT reported. Mr ElBaradei flew to Cairo from Vienna on Thursday evening following clashes between police and protesters in two Egyptian cities. Security forces reportedly shot dead one protester in the north of the country, the latest of several reported deaths. The 68-year-old Mr ElBaradei, a former Egyptian diplomat and ex-chief of the International Atomic Energy Agency, told reporters in Cairo that he would take part in protests that opposition parties and a youth protest movement have called for following Friday prayers.

Further further reading

For the commute home, and to help you conduct your own inquiry,

Larry Summers reveals a soft side in his debate with the Chinese mother. Read more

There are times when inflation is good for Britain

From the UK’s Debt Management Office on Thusday (FT Alphaville’s emphasis):

The extent of high quality demand mobilised today has enabled us to raise slightly more than we had originally planned through index-linked syndications from within the supplementary programme as a whole; as a consequence we have decided today to rebalance the financing contribution within the index-linked supplementary programme by cancelling the two remaining planned index-linked gilt mini-tenders.

 Read more

FCIC resources and graphic design

Wikileaks may have encouraged a frustrating numbness to this sort of thing, but the FCIC site carries a hefty “resource library”.

It’s worth checking out — if only for some quick and powerful examples of graphic design to bring to the classroom. Our personal favourites… (click to expand) Read more

A record WTI-Brent spread, a new paradigm

Here it is, the all time record spread between CME WTI front-month future crude and ICE Brent front-month future crude:

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A pause in the muni madness

Another day, another report of municipal bond outflows from mutual funds. From Reuters on Wednesday:

The mass exodus of cash from municipal bonds accelerated to a record outflow of an estimated $5.7 billion in the week ended Jan. 19, data from the Investment Company Institute showed on Wednesday. The redemptions are the most in any week since the ICI, a U.S. mutual fund industry trade group, started tracking weekly investment flows at the start of 2007.

 Read more

Whose Chinese property bubble is it anyway?

When it comes to asking what the China risk is, there’s a distinct air of ‘whose line is it anyway?’ regarding the cause of the country’s property bubble.

Is it more the fault of households buying second (third, etc.) homes? Read more

The truth about the financial crisis (FCIC version, anyway)

Streaming now, the Financial Crisis Inquiry Commission releases its final report.

The full 662-page publication is in the usual place.

Why bank capital is rubbish

How much bank capital is just enough bank capital to survive a crisis?

Reading this Bank of England paper on the issue, you might think the authors are simply arguing that banks ought to be made to hold more loss-absorbing capital (double, actually) than Basel III will be asking. Read more

EFSF yours! says Eurostat to EFSF lenders

Fresh from Eurostat, the future of the EFSF.

At least, in terms of the way it’s accounted for in Europe’s national accounts. The statistics body figures that funds raised by the European Financial Stability Facility (EFSF) will have to be recorded in the gross government debt figures of the eurozone states which guarantee it, and according to the size of their guarantee. Read more

The Mubarak effect on equities

Things are moving fast in Egypt — especially in equity markets.

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Markets Live transcript 27 Jan 2011

Live markets commentary from 

From a three-speed Europe to a structurally-cracked eurozone

A recovering eurozone. Check. But not firing on all cylinders.

After its Thursday downgrade of Japan, Standard & Poor’s agency has published an economic research report on Europe. It’s headlined “The eurozone’s three-speed recovery continues to unfold, widening the competitive gap between members.” Read more

Sky high, Digger humbled

Wanna know why Rupert Murdoch is determined to get the buyout of BSkyB done in a hurry?

Just take a look at Thursday’s half results from the Pay-TV company. Read more

Japan downgrade: The (umpteenth) denouement

Thursday’s move by S&P to downgrade Japan’s sovereign credit rating was about as surprising as the inevitably tragic outcome of a much-loved kabuki play. Equally predictable, the rating agency cited the government’s lack of a clear strategy in reducing Japan’s large debt burden, currently around 200 per cent of GDP.

In fact, as we noted earlier this week, various top officials including the former chief government spokesman, Yoshito Sengoku, and the newly-appointed economy and fiscal affairs minister, Kaoru Yosano, foreshadowed ominous things to come — Yosano with his memorable “dreadful dream” remarks last week. Read more

Goldman’s Cohn warns on shadow banks

Gary Cohn, president of Goldman Sachs, has warned that the drive to impose more regulation on banks could cause the next crisis by pushing risky activities towards hedge funds and other lightly supervised entities, reports the FT. Goldman’s registering of concern over such shadow banks departs from its previous low profile on the matter, given that hedge funds are among its key clients. People close to the situation said Goldman executives were concerned about the build-up of risk not just among hedge funds but also entities such as the clearing houses set to take over some of the derivatives’ business from banks. FT Alphaville has a primer on the issue from July.

FCIC report already has blizzard of dissents

It was too much government support for home ownership! No, it was the savings glut in Asian emerging markets! Even the pre-emptive dissents to the Financial Crisis Inquiry Commission’s report on what caused the crisis can’t make their minds up, says the NYT. Republican members of the FCIC fault it for lacking a ‘focused explanation’ of what went wrong. Commission insiders argue by contrast that the report will end up flattering Wall Street, having failed to do proper forensic investigative work, according to Naked Capitalism. Former officials writing in the WSJ have a regulation-focused ten-point argument worth reading, which tries to move between either set of dissents.

Fed statement: cautious, but unified

The Federal Reserve cautiously upgraded its growth outlook and kept its asset purchase programme at $600bn after its first unanimous vote since 2009, the FT reports. The most important change to its statement was a reference to rising commodity prices, although the Fed said that there had been no change to underlying inflation trending downward. There was a final change to the statement that intrigued markets: the Fed dropped language saying that it intends to buy assets at a pace of $75bn per month. However, that may simply reflect the reality that the pace of Fed purchases has fluctuated from month to month.

Former Galleon managers admit insider trading

Two former Galleon Group portfolio managers have pleaded guilty to inside trading and agreed to co-operate with the government in its case against Raj Rajaratnam, the FT reports. Former portfolio manager Adam Smith pleaded guilty to securities fraud and conspiracy to commit securities fraud on Wednesday, while former trader Michael Cardillo pleaded guilty to having received and traded upon inside information. Prosecutors agreed not to pursue Mr Smith for destroying records following Rajaratnam’s arrest. The two men are the first in Galleon to cooperate with the government, setting the stage for a dramatic trial if they testify against Rajaratnam, the WSJ says.

Moody’s factors in muni pension problems

Moody’s is now ranking US states’ liabilities according to both debt and unfunded pension liabilities, the FT reports. In a bid to give a broader picture of state finances, Moody’s combined their net tax supported debt and unfunded pension liabilities to assess how leveraged states are. Even then however, Moody’s has used data from 2009 which put all unfunded liabilities at $500bn, some way below other estimates. The move by the ratings agency has nevertheless ruffled feathers, the NYT says, because states do not show any of their pension obligations on audited financial statements.

Stanford ruled unfit for trial

A federal court has ruled that Allen Stanford is incompetent to stand trial over charges of running a Ponzi fraud scheme and has ordered him to be treated for drug addiction, Dealbook reports. Stanford’s trial had been scheduled to begin this week and could now be delayed to the second half of this year, the WSJ says. Experts said that Stanford had become addicted to medication prescribed for a depressive disorder following his incarceration in 2009. In making the decision, Judge David Hittner ordered that Stanford be treated in a federal prison hospital such as Butner in North Carolina, rather than a private institution, given flight risk. Bernard Madoff is currently incarcerated in Butner.

AstraZeneca makes analyst cry

Here’s an early contender for the most amusing analyst research note of 2011.

It comes from London-based Druganalyst, which was one of the top 10 independent equity research firms in last year’s Extel survey according to the blurb on its website. Read more

US deficit seen at $1.5 trillion in 2011

A day after President Barack Obama pledged to “make sure we aren’t buried under a mountain of debt”, the Congressional Budget Office has offered a grim picture of short and long-term fiscal challenges facing the US, the FT reports. The CBO said the annual budget shortfall in the 2011 fiscal year would reach $1,480bn – the largest on record – up from $1,290bn last year and $1,410bn in 2009. The forecast unwinds the CBO’s view in 2010 that the deficit would decrease this year, thanks to the $400bn of tax cuts extended by Congress, the WSJ adds.

Fannie and Freddie seek dividend cuts

Fannie Mae and Freddie Mac have been quietly lobbying the US Treasury to cut the dividend the housing finance groups pay on preferred stock issued as part of their government bail-out, people familiar with the matter have told the FT. A dividend cut would allow $150bn of taxpayer bailout money to be repaid and reduce the amount of preferred stock held by the Treasury. This currently pays out a 10 per cent quarterly dividend, double the amount that is charged to banks given assistance under Tarp. While the sources said that the White House is keen to change the situation, the politics of restructuring Fannie and Freddie is difficult, with concerns that cutting the dividend will reward private investors in the companies before the taxpayer is repaid.