Posts from Tuesday Mar 1 2011

DPJ rebel suspended over Japan budget vote

Japan’s ruling Democratic party is to suspend the leader of a group of rebels who failed to vote for the government’s Y92,000bn ($1,120bn) 2011 budget, reports the FT. The action against Koichiro Watanabe, who abstained from a pre-dawn vote in the Diet’s lower house on Tuesday, highlights tensions within the ruling party as it lurches toward a budget showdown with the opposition that could heighten investor concerns about Japan’s sovereign risk.

Ambani criticises Singh on economy

Mukesh Ambani, India’s richest man and a powerful industrialist, has challenged the government of Manmohan Singh, prime minister, to be far bolder in its approach to building India into a leading economy and world power. Mr Ambani, chairman of Reliance Industries, warned on Tuesday of a two-speed India whose divisions could not be addressed by “meaningless” small reforms and a lack of a grand vision among the country’s leadership. He called for an urgent return to “disruptive policies” – such as the 1991 financial reforms that Mr Singh masterminded – to take full advantage of India’s economic potential and to remove “the shackles and free up Indian minds”. In an outspoken address to the nation’s top business leaders he said: “India needs a bold new vision and a feasible action plan”.

Risk appetite wilts as Saudi market tumbles 7%

Stocks have retreated sharply while oil and gold have spiked higher, with traders spooked by a 7 per cent fall in the Saudi Arabia stock market on fears unrest may spread to the kingdom, the FT reports. The S&P 500 on Wall Street is down 1.2 per cent as worries about the Mideast override news that US manufacturing is at its strongest in nearly 7 years. That extends its decline since the spike in Libya fears at the beginning of last week to 2.4 per cent. Ben Bernanke added some credibility to the market’s fears over oil prices when he said that the Federal Reserve, which had previously been focused on personal consumption prices, said that rising energy prices represented “a threat both to economic growth and to overall price stability”. Futures traders had earlier in the session been betting on the seemingly obligatory first-day-of-the-month rally. But the wariness engendered by the Saudi stock market’s biggest drop in more than two years – which has taken the benchmark index to its lowest level in 20 months – is taking its toll on Wall Street and Europe. The FTSE All-World equity index is down 0.4 per cent to 226. The benchmark hit a post-credit-crunch high of 229 just seven days ago on hopes the global economic recovery was gathering steam, and those convictions still seem intact – for now.

Fed ready to fight oil price threat

The US Federal Reserve is “prepared to respond as necessary” if rising commodity prices threaten to trigger inflation or choke off the economic recovery, said Ben Bernanke, reports the FT. Delivering his six-monthly monetary policy report to Congress on Tuesday, Mr Bernanke said “sustained rises in the prices of oil or other commodities would represent a threat both to economic growth and to overall price stability, particularly if they were to cause inflation expectations to become less well anchored”.

Ex-Goldman director on insider charge

Rajat Gupta, who ran McKinsey for almost a decade, has been hit with civil insider trading charges for allegedly sharing secret information he learned as a Goldman Sachs board member with Galleon Group founder Raj Rajaratnam, the FT reports. The Securities and Exchange Commission’s charges allege Mr Gupta shared information about Warren Buffett’s $5bn capital infusion into the bank in 2008 within one minute of the board’s approval of the deal.

Further further reading

For the commute home, and to help you scrutinise the lying scoundrels in your lives,

– “Disgraced financier Bernard Madoff may be a lying, conniving scoundrel, with gusts up to psychopath, but that doesn’t mean he’s wrong.” Read more

Brazil’s balance sheet, oil, and the BRL (part 2)

In Part 1 we introduced a recent Nomura paper on how the Brazilian Real is currently overvalued. Here’s the explanation.

The BRL as an oil play Read more

Brazil’s balance sheet, oil, and the BRL (part 1)

To what extent is the current strength of the BRL based on the expectation of something that hasn’t happened yet?

That’s one of the questions asked by Nomura in an intriguing new paper that examines the position of international investors in Brazil, and explores what it means for the future of the Real. Read more

Government shutdown, economy slowdown?

Well, it’s a start.

The FT reported Monday evening that the House of Represenatives will on Tuesday vote on a two-week continuing resolution (CR) that funds the federal government through March 18 and reduces FY 2011 discretionary authority by $4bn. Read more

SEC phones up Goldman ex-director charges

Highlights (lowlights?) from SEC insider trading charges against Rajat Gupta, a former Goldman director:

Specifically, Gupta disclosed to [Raj] Rajaratnam material nonpublic information concerning Berkshire Hathaway Inc’s (“Berkshire”) $5 billion investment in Goldman Sachs before it was publicly announced on September 23, 2008, as well as Goldman Sachs’s financial results for both the second and fourth quarters of 2008. Rajaratnam caused the various Galleon hedge funds that he managed to trade based on the material nonpublic information, generating illicit profits and loss avoidance of more than $17 million…

 Read more

UpTIC in China’s treasury holdings? Sort of

The US treasury department has published the preliminary results of its annual revisions to foreign holdings of US securities.

In chart form, with an explainer to follow: Read more

Are some traders gaming the system via settlement failures?

How worried should investors be about rising settlement fails?

In the opinion of the Kauffman Foundation, veryRead more

Plunge protection teams, New Egypt edition

On a less than glorious day for MENA sovereign wealth funds…

FT Alphaville’s Cairo agent sends this newspaper clipping our way: Read more

Volatility as the new Black-Scholes

Here’s a timely discussion following the Vix smashing through the 20 level.

It comes via Euromoney columnist, Theo Casey, and it concerns a 2010 paper by Eckhard Platen, professor of quant finance at the University of Technology, Sydney. Read more

Saudi contagion shivers

This is Saudi Arabia’s benchmark stock index on Tuesday:

 Read more

Madoff, father of the automated trade

For those who have not yet stumbled across New York Magazine’s beguiling interview with Bernie Madoff, we do recommend a closer look.

Not only is it a compelling read in its own right — Steve Fishman, for example, recounts in great colour the conditions in which Madoff now finds himself in prison  — it provides a unique window into the mind of Madoff throughout all those Ponzi years. Read more

Gaddafi’s sovereign fund — FROZEN

No stock dividend for Colonel Gaddafi — and a stunning precedent for sovereign wealth funds — from Pearson, publishers of the FT and FT Alphaville, on Tuesday. From a statement:

Pearson plc announced on 7 June 2010 that it had received notification that the Libyan Investment Authority (LIA) had acquired 24,431,000 ordinary shares in the company. On further investigation, Pearson has reasonable cause to believe that the LIA may have acquired an additional 2,141,179 shares resulting in a total interest in 26,572,179 shares. This represents 3.27% of the company’s issued share capital. Read more

Unlucky Corsair Finance

We’ve heard of CDOs swashbuckling with risk, but this is just silly…

On Tuesday, Moody’s junked €200m of notes of Corsair Finance (Ireland) No. 2 Limited, a collateralised debt obligation referencing several corporate entities. Read more

Markets Live transcript 1 Mar 2011

Live markets commentary from 

Japan’s big comeback…?

It was almost – but not quite – like (the good) old times in Japan as nearly 1,000 fund managers, other investors and corporate executives gathered in Tokyo’s Grand Hyatt hotel to kick off CLSA’s 8th annual Japan forum this week.

As we noted last year, despite the gloomier mood back then, CLSA has for nearly a decade managed to make its annual bash the highest profile investor gathering hosted by any western group in Japan. Extra cachet has come from lavish, end-of-conference parties that usually feature an internationally renowned act (mainly ones that appeal to the over-40 hedgie and banker crowd, such as last year’s appearance of Duran Duran). Read more

Goldman delivers for Ocado investors

Here’s a surprise. Goldman Sachs has responded to the sharp fall in the Ocado share price with an upgrade.

We upgrade Ocado to Buy (from Neutral). The stock has declined c.20% in the past month, offering an attractive entry point. Our unchanged 6-month price target of 304p now implies 51% upside potential, above the median for our Small and Mid Cap coverage of 23%. Hence, we upgrade to Buy. We retain our view that Ocado’s differentiated business model (proprietary centralized, semi-automated distribution and delivery network) results in a superior customer offering relative to other UK online grocers (e.g. more flexible delivery slots, higher order accuracy), hence, the company is well placed to deliver strong growth.

 Read more

China holds $1,160bn of US debt

The US Treasury has dramatically revised data on foreign holdings of US government debt, estimating that China owns more Treasuries than previously thought while the UK holds only about half as much, the FT reports. The figures released on Monday suggest fears that China has been reducing its US dollar holdings may have been overstated. Richard Gilhooly, strategist at TD Securities, estimated that the new data means that 42 per cent of China’s reserves are in Treasuries, compared with his previous estimate of 32 per cent. “The figures definitely suggest that worries about China diversifying away from Treasuries are overblown,” he said. “They are still by far the largest [foreign] holder, and if you are worried about concentration among holders, that concern still remains.”

China manufacturing growth eases

Headline growth in China’s manufacturing industry eased for a second consecutive month in February as activity slowed to a six-month low in the face of tighter monetary policy and rising commodity prices, the FT reports. In a sharp contrast to the region’s largest economy, data from India suggested a marked expansion of industrial activity during the month, with growth accelerating to a three-month high, adding to fears about upward pressures on inflation. China’s official Purchasing Managers’ Index, published on Tuesday by the Federation of Logistics and Purchasing, fell to 52.2 from 52.9 in January – the lowest since August. However, the February figure remained positive and was higher than the median forecast of 52 in a Reuters survey of economists, indicating that the sector remains healthy in spite of interest rate increases and other measures intended to cool inflation.

Former Apple employee pleads guilty to fraud

A former Apple procurement manager has pleaded guilty to wire fraud and other charges in a multimillion-dollar kickback scheme, the FT reports. Paul Devine entered a plea agreement on Monday in federal court in San Jose, California, accepting responsibility for one count each of wire fraud, conspiracy and money laundering, prosecutors said. The ultimate loss to Apple was more than $2.4m, according to the agreement, and Mr Devine agreed to forfeit $2.25m in proceeds from his actions. He has been free on bail and is scheduled to be sentenced in June. Mr Devine, 38, was indicted and arrested in August after a probe begun within Apple found incriminating e-mails and formal agreements for him to be paid for inside information.

Citi under fire over disclosure

Citigroup has come under attack from a prominent analyst and accountancy experts for failing to disclose regulatory criticism of the bank’s valuation of troubled securities during the financial crisis, the FT reports. Newly released documents show that on February 14 2008, the Office of the Comptroller of the Currency, one of Citi’s main regulators, expressed concerns about the way Citi valued mortgage-backed securities. In a letter sent by John Lyons, a senior OCC official, to Vikram Pandit, Citigroup’s chief executive, the regulator said it had found “several deficiencies that need to be addressed” in the way Citi valued illiquid collateralised debt obligations. Citi suffered more than $50bn in losses during the crisis, largely due to writedowns on CDOs, prompting the US government to launch a $45bn bail-out of the bank. For more see FT Alphaville.

Accounting for Egg

Compare and contrast Tuesday’s statements from Barclays and Citigroup on the sale of the Egg UK credit card portfolio.

First, BarclaysRead more

New month, same rally, as stocks recover poise

Stocks were back within 1 per cent of last month’s cyclical highs as the market once again showed its fortitude, swiftly absorbing Mideast turmoil and rising inflationary pressures, the FT’s global market review reports. The FTSE All-World equity index was up 0.4 per cent to 227.6. The benchmark hit a post credit crunch high of 229 just seven days ago on hopes the global economic recovery was gathering steam, and those convictions clearly remained intact. S&P 500 futures were up 0.5 per cent. Manufacturing surveys out of China and India show the sector continued to expand, though tighter monetary conditions in the former appear to have reduced the pace of activity to a six-month low. This has has led to some selling of industrial metals during the Asian trading session on concerns that demand from the Middle Kingdom may ease. The surveys also showed surging input prices as higher raw materials prices feed into the supply chain.

The EFSF chief executive writes in…

Klaus Regling, the chief executive of the European Financial Stability Facility, strives to argue in a recent letter to the FT that he is not in charge of a massive collateralised debt obligation.

For argument’s sake, never mind that the FT noted the EFSF is not technically a CDO in any case. (And cast aside thoughts that Regling doth protest too much, perhaps.) Read more

HMV’s debt disaster [updated]

Hopes are fading for HMV.

The embattled books and DVD retailer has issued another profits warning on Tuesday morning. Read more

Further reading

Elsewhere on Tuesday,

– A very political OscarsRead more