Posts from Friday Jan 28 2011

US foreign aid to Egypt

This might be of use: a bit of statistical context that suggests just how important Egypt is to US foreign policy.

Since the Israel-Egypt peace accord in 1979, these two countries have been the number one and two recipients of US foreign aid. (Excluding money spent on the wars in Iraq and Afghanistan.) This amounts to around one-third of total US foreign aid. Read more

Further reading, special Egypt edition

“Despite the Mubarak regime’s efforts to invoke the spectre of the Muslim Brotherhood, Egyptians aren’t demonstrating for an Islamic government any more than the Tunisians were; they’re demonstrating for an honest government – one that will improve education and infrastructure, reduce poverty and inflation, end the Emergency Law, stop torturing people in police stations, stop doing the bidding of the US and Israel in Palestine, stop rigging elections, and, above all, stop lying to them.” – London Review of Books

Factbox on the Suez Canal (HT Kedrosky) – Reuters Read more

In Pharaoh’s markets, part two

Egypt CDS blew out 50bps in just over an hour to 450bps on Friday, as protesters ignored the government’s curfew and tanks rolled into major cities…

 Read more

The Suez effect on WTI-Brent [updated]

Speculation about the potential closure of the Suez canal is mounting on Friday, probably the reason that WTI prices are heading higher.

Notably, prices of Brent crude (which is not continent-blocked; it comes from the North Sea and doesn’t tend to get transported through the Suez canal) are not climbing. Read more

An unusual letter from the Fed, an unwinding of hedges

That’s a sudden spike in trade volume right around Tuesday of this week. As a reminder, this index tracks CDS on 125 investment-grade names, including the monoline MBIA. Read more

Macro Live transcript 28 Jan 2011

Live markets commentary from FT.com 

WTI arbitrage is a PADD II windfall

There’s been some interesting commentary on Friday regarding the ongoing problem of the widening WTI- Brent spread, which struck a record wide in like-for-like basis terms on Thursday.

First this from John Kemp at Reuters, on the mechanics of arbitrage and the substantial physical hurdles to closing out the current window. Read more

Meanwhile, in Chinese gyms

With private Chinese media getting more restrained by the day in their financial coverage – it might pay to read between the lines of what state outlets are saying.

To wit, this bit of fluff from China Daily: Read more

US Advance Q4 GDP: 3.2 per cent

Fresh out on Friday — details courtesy of Reuters. At 3.2 per cent, the headline is below median expectations but we’ll be digging a little deeper in a bit to get the full story. Looks at first glance like the sales and inventory numbers are very solid indeed.

Tune in during Macro Live at 10am EST / 3pm GMT for more, hopefully incisive, commentary. Read more

What a strong euro hides

Compare and contrast — charts from a UBS investor survey:

 Read more

The (still weak) US lending recovery

A graph from Moody’s Analytics, plotting the federal funds rate against the growth in commercial and industrial loans:

 Read more

Eek Eonia!

***WARNING*** Interbank rate geekiness ahead! ***WARNING***

 Read more

Markets Live transcript 28 Jan 2011

Live markets commentary from FT.com 

In Pharaoh’s markets

Drastic developments in Egypt overnight:

At 22:34 UTC (00:34am local time), Renesys observed the virtually simultaneous withdrawal of all routes to Egyptian networks in the Internet’s global routing table. Approximately 3,500 individual BGP routes were withdrawn, leaving no valid paths by which the rest of the world could continue to exchange Internet traffic with Egypt’s service providers. Virtually all of Egypt’s Internet addresses are now unreachable, worldwide… Read more

Who are America’s riskiest banks?

The Federal Reserve has updated its indicators for systemic risks posed by US banks, with some interesting results, FT Alphaville reports. ‘By our relative measure since the summer of 2007, Bank of America and Wells Fargo’s contributions to systemic risk have risen, JPMorgan Chase has seen some decreases, and Citigroup’s share has remained the largest,’ says the Fed’s study paper, which looks at CDS spreads and asset correlations. The findings might offer an interesting coda to the FCIC’s report on the financial crisis released yesterday. “Even Goldman Sachs, we thought there was a real chance that they would go under,” Federal Reserve chairman Ben Bernanke is quoted as saying in the report, according to the FT.

An update on America’s riskiest banks

Cast your minds back to the SCAP — that’s the Supervisory Capital Assessment Program, better known as the US banking stress tests of spring 2009.

The results showed Bank of America, Wells Fargo and GMAC as requiring the most amount of capital; in other words, they were expected to generate the most losses. Read more

Forecasts look to 3.5 per cent US growth

The biggest gains to consumer spending in four years likely boosted US economic growth in 2010′s last quarter, leading to a consensus forecast of 3.5 per cent in Friday’s GDP release, Reuters reports. Spending by consumers may have grown by up to 4 per cent, while spending on equipment by business is also expected to have maintained recent rises. Recent economic data actually suggests that 3.5 per cent may even be a lowball estimate, especially looking at ISM figures, Pragmatic Capitalist argues. FT Alphaville will hold a special Macro Live live chat session at 10:00am New York time / 15:00pm London time to discuss the GDP release and other indicators.

Rise in borrowing supports Wall Street rally

Traders are borrowing to buy shares at the highest rate in more than two years, helping to extend Wall Street’s impressive stock market rally, says the FT. The New York Stock Exchange said margin debt among its member firms in December had been the highest since the fall of Lehman Brothers in September 2008. Traders who report to the exchange said they were borrowing more than $276bn. Investors have also been putting more investment cash with hedge funds, which employ leverage, rather than mutual funds, which generally do not. Margin debt growth has however slowed recently even as the S&P 500 powers ahead, suggesting that some traders are becoming slightly less bullish.

LinkedIn files for offering

The business social network LinkedIn is seeking to raise up to $175m from an initial public offering, according to registration documents, the FT says. The prospectus said the company’s revenue doubled in the first nine months of 2010 from the same period a year earlier, to $161m, though it expects that rate of increase to slow. FT Alphaville observes that net income was $10m from 90m users. LinkedIn is the first from a stable of internet secondary-market darlings that investors have been hoping to see file in 2011 or 2012, including Zynga, Groupon and Facebook, Reuters says.

Hedge funds counter-attack Cohn

Leading hedge fund managers have hit back at calls for tougher regulation of their industry made by Gary Cohn, Goldman Sachs president, in Davos, the FT reports. Mr Cohn warned that bank regulation would send risk into the shadow banking sector, including funds. One manager accused Mr Cohn of behaving “cynically” to try to distract regulatory attention. “Until 18 months ago, Goldman Sachs was the biggest hedge fund in the world,” this person said, referring to the bank’s sizeable proprietary trading activities, which allowed the bank to speculate with its own capital. Nevertheless, Deutsche Bank’s chief executive Josef Ackermann also pointed to systemic risk from hedge funds at Davos, Bloomberg says.

BofA riles with cash bonuses

Bank of America plans to increase the cash share of employees’ bonuses from 5 per cent to as much as 30 per cent this year, setting off grumbles among bankers attending Davos, the WSJ reports. BofA’s rules are now strikingly similar to those employed by Credit Suisse, including on the deferral of some compensation, the Journal adds. Linking bonuses to revenues versus increasing base salaries has also stoked controversy. European bankers at Davos, meanwhile, point to the fact that their US counterparts are still far less regulated over bonuses than they are.

Amazon stock tumbles on profit margin fear

Amazon has once again outstripped its bricks and mortar retail rivals in the holiday quarter, with sales rising 36 per cent and passing $10bn for the first time, the FT says. But the figures were not enough to prevent disappointing operating income forecasts from contributing to a 10 per cent fall in Amazon shares in after-hours trading. Amazon said it expected operating income to decline to between $260m and $385m. Spending high to make acquisitions has dogged Amazon for years, even though such spending has sometimes resulted in huge successes, like the Kindle e-book reader, the WSJ reports.

Microsoft boosted by Kinect, hobbled by PCs

Microsoft’s profits have beaten expectations — but its sales of Windows software fell well short of forecasts, Reuters reports. Personal computer sales grew only 3 per cent over the quarter, compounding long-standing concerns that Microsoft is falling behind in the race to move from its key market into tablets and smartphones. At least Kinect provided one bright spot, reports the FT. Some eight million units of the motion-sending game controller were sold in the quarter. Sales in Microsoft’s entertainment and devices division rose 55 per cent to nearly $4bn. Another surprise within Microsoft’s results: how they were released. Selerity, a data aggregator, discovered and tweeted a press release on the company’s website hours ahead of the official data for release to markets, the WSJ notes.

EM governments stockpiling food

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. Bangladesh and Indonesia joined the rush on Thursday, placing extraordinarily large rice orders. Traders said that Jakarta, which usually buys rice in 200,000-tonne allotments, tendered for more than 800,000 tonnes. Bangladesh added that it would double rice purchases this year.

Regling looks at Manila, to help Athens

If you’re as obsessed with European Financial Stability Facility (EFSF) head Klaus Regling as we are, you might have noticed these bits on his CV:

What does this have to do with Manila? It’s thought that during his time at the IMF, Regling was stationed in both Washington DC and Jakarta, where he may well have been exposed to the debt restructurings undertaken by the Philippines at the time. Read more

Yen picks

Here’s a short round-up of reactions, comments and other musings from the Financial Times, the blogosphere and other media on S&P’s move to downgrade Japan’s rating.

FT: Peter Tasker – The Japanese debt disaster movie
S&P’s downgrade of Japan’s credit rating raises a disturbing prospect, writes Tasker, a Tokyo-based analyst with Arcus Research. Is this stage two of the global credit crisis, featuring a chain of sovereign defaults among the largest economies? After the disasters of 2008, such fears are understandable, but misguided. The risk is they lead to policies that, far from solving the world’s economic problems, make them a whole lot worse. Read more

Further reading

Elsewhere on Friday,

- ‘Cheap House Is Not Available.’ Read more

Pink picks

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

Martin Wolf: A warning shot for the British experiment
The preliminary figures on UK GDP for the 2010 fourth quarter were a shock, writes the FT columnist. Where now is the robust recovery that justified the government’s rapid fiscal retrenchment? In a word, nowhere. Recovery was always likely to be “choppy”, as Mervyn King, Bank of England governor, noted in a significant speech this week. The government has now been warned. The decision on long-term spending levels relative to GDP is essentially a matter of political values. The inflexibility of George Osborne, the chancellor, is a political gift to the Labour opposition and Ed Balls, the new shadow chancellor. Just hoping for the best is simply irrational. The chancellor should plan for the worst, right now. Read more

Snap news

Breaking pre-market news on Friday,

- Amazon now selling more Kindle books than paperbacks — statementRead more

La Caixa unit to list

La Caixa, the unlisted Barcelona-based savings bank that has the biggest domestic retail network in Spain, will move its banking operations into a listed company as part of a plan to strengthen its capital base and continue growing, reports the FT. The new bank will have a book value of €20.6bn ($28.2bn), making it the eurozone’s 10th biggest bank, behind France’s Crédit Agricole, when the operation is completed in July, the bank said. The move of unlisted La Caixa’s banking business into a quoted company is the most significant change so far amid upheavals in the Spanish financial system triggered by the collapse of Spain’s property boom over the past three years, and is likely to add intense pressure on weaker and smaller Spanish cajas, or savings banks, to follow suit.