Posts from Tuesday May 10 2011

Further further reading

For the commute home,

- A new toy for Bill Gross: the UltraShort 20 Yr Treasury ETF (TBT) performance simulatorRead more

US under pressure to fill rare earths gap

Manufacturers and politicians in the US argue for more investment in the country’s production of rare earths, amid intensifying concern about China’s domination of supplies of the vital metals, writes the FT. Demand for and prices of rare earths – a collection of 17 elements from the periodic table used to make smart phones and military radars – have skyrocketed in recent years.

Talk of €60bn Greek bail-out calms nerves

Reports that Greece is in line to secure a new €60bn aid package, possibly reducing the chance of a default, have provided support to the euro, while strong trade data from China have helped boost optimism about the global economy, reports the FT’s global market overview. The FTSE All-World index is up 0.9 per cent and the FTSE Eurofirst 300 is higher by 0.8 per cent as financial stocks rally on hopes they will not have to suffer severe haircuts on their sovereign debt exposure. Some Greek banks are particularly robust, pushing the Athens stock market up 1.4 per cent. In New York, the S&P 500 is higher by 0.8 per cent, leaving the equity benchmark less than 6 points below this month’s closing cyclical peak of 1,360.

On Tuesday, West Texas Intermediate crude was at one point down more than 2 per cent but it has recovered from those losses and is now up 0.9 per cent to $103.57 a barrel, after the Greek bail-out talk bolstered demand for riskier plays. Copper is up 0.9 per cent to $4.05 a pound, silver is higher by 1.7 per cent to $38.49 an ounce and gold is up 0.2 per cent at $1,516 an ounce. Read more

Investor appetite for risk boosts Goldman

Goldman Sachs said its traders lost money on only one day in the last quarter, underlining how volatile markets and investors’ appetite for risk have helped revive Wall Street’s biggest source of revenue, reports the FT. Goldman, Morgan Stanley and other banks reported a sharp rebound in trading results in early 2011, as investors sought higher returns and placed bigger bets on currencies and commodities.

Japan prepares rescue plan for Tepco

The Japanese government is close to completing a draft plan to rescue Tokyo Electric Power, operator of the crippled Fukushima nuclear plant, to keep the utility from collapsing under the weight of tens of billions of dollars in compensation claims. Masataka Shimizu, Tepco president, on Tuesday made the first formal request for government aid since the plant began leaking radiation after the March tsunami. He said the utility would find it “extremely difficult” to pay clean-up costs, indemnify evacuated residents and buy additional fossil fuels without help from the state, reports the FT.

 

Microsoft confirms $8.5bn Skype deal

Microsoft took a bold step in the battle for control of the consumer internet on Tuesday with a $8.5bn (€5.9bn) acquisition of online telephone service Skype, its biggest acquisition and a deal that broadens its competition with Google and Apple. The sale of one of the world’s best-known internet brands will hand a windfall profit of some $5bn to a group of investors who bought the company only 18 months ago, making it one of the biggest paydays in the buy-out industry, reports the FT.

Egypt: the revolution continues

Zhou Enlai famously advised Henry Kissinger it was too early to conclude on the outcome of the French Revolution. Little wonder, then, that the economic contours of the new Egypt are still fuzzy two months after Hosni Mubarak was topppled.

Citigroup’s Egypt economics team argue in a report out Monday that while democracy should be a boon for the country in the long run, political recriminations and economic populism put it at risk of stagflation in the short run. Investors should be wary of the newly reopened EGX and be underweight Egypt in GEM portfolios. Read more

From Quito, to Kingston, to Athens?

Moody’s 2011 sovereign default study is out — and it features this illuminating chart on recent sovereign bond recovery rates:

 Read more

Whistleblowers in muniland

The Bond Buyer’s Patrick Temple-West has an interesting article on Tuesday based on comments made Friday by the interim director of the IRS’s government entities bond office:

The Internal Revenue Service’s tax-exempt bond office has received referrals of around 30 whistleblower claims of potential abuses in the municipal bond market, an official said Friday. Read more

What fiscal transfer to Greece do you want?

Why they’ll extend private Greek debt maturities — in two charts:

 Read more

The past, present and future of EM PE

FT Alphaville will be reporting this week from the annual Global Emerging Markets Private Equity Conference in Washington, DC — and we plan to use the event as an excuse to write a series of posts on this fascinating market throughout the next week or two.

Something that surprised us at last year’s meeting (see our report, in pre-FT Alphaville guise) was the cautious mood of the PE fund managers and investors we spoke to. As we said at the time: “people were confident that private equity in emerging markets has a bright future, but there was some doubt about how quickly it should grow.” Read more

Those flatlining money market funds

It’s hard times for money market funds.

With the repo market broken, and new post-crisis regulation, they’re left to cope as best they can with what’s essentially a broken business model in an environment of extremely low interest rates. Read more

A proclamation from the Spanish Ministry of Public Works…

Just in case you were wondering…

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The LSE’s giant ball

Two questions: Why? And how much did it cost?

Press release from the London Stock Exchange: Read more

There’s no change for the US driver…

… because the gasoline crack (the difference between the price of crude and the price of gasoline — a key metric in determining whether there’s enough incentive for a refinery to process crude) is roofing.

So, even though oil prices have done this: Read more

Man alive

We’d been wondering how those trend-following black boxes performed during last week’s commodity rout and now, thanks to Man Group, we have an inkling.

The following went up on the hedge fund managers website on Monday night and shows the AHL strategy lost 5.3 per cent last week due to the wild swings in commodity prices and to a lesser extent, currencies. Read more

Markets Live transcript 10 May 2011

Live markets commentary from FT.com 

To avoid Greek restructuring losses – an accounting loophole for banks

“We previously expressed the view that, ‘unless the government concerned was prepared to suffer significant economic costs (and in effect, restore bond holders to the position they were in before credit concerns arose) there is no way for holders to avoid having to book losses in their financial statements’.”

Scratch that! Read more

Berkowitz says misjudged AIG price

The biggest private shareholder in AIG expects the government to sell its shares in the bailed-out insurer at a price of $27 to $29, below the level at which he bought most of his position, the WSJ reports. Bruce Berkowitz, manager of the $17.5bn Fairholme Fund, said that he had been wrong in expecting the government to release stock at a level closer to AIG’s book value of $47 a share. AIG shares fell to $29 on Monday: the government’s break-even price is $28.70. Fairholme began purchasing AIG shares in 2010 at levels between $22 and $34 but the trade has since gone awry along with its positions in Bank of America.

Paulson’s Lehman bankruptcy bet

Paulson & Co could end up making profits of between $350m and $726m on its purchases of distressed Lehman Brothers debt, if a bankruptcy plan going through courts is approved, says the WSJ. Paulson has bought $7bn of Lehman debt since 2008 at an average price of 13 cents on the dollar; one bankruptcy plan supported by Paulson would return 25 cents on the dollar to investors. While the higher recovery values will also help public pension funds who bought Lehman bonds, funds that traded with its subsidiaries will see their recoveries on claims reduced accordingly. Elsewhere, a federal court has approved Barclays to receive $1.1bn from Lehman’s trustee, but some $2bn in assets are still in dispute, the FT says.

LinkedIn seeks $3.3bn IPO

LinkedIn is aiming for a valuation of as much as $3.3bn when the social network carries its initial public offering this month in a move that will crystalise substantial paper wealth for its founders and executives, the FT reports. At a market value of $3.3bn, LinkedIn would be priced at 13 times last year’s revenues of $243m – a high level for non-internet companies but less than some high-profile peers, including Facebook, which has a multiple of 32 times its estimated 2010 sales according to private stock valuations. In contrast to Facebook’s half a billion users, LinkedIn claims 102m but has made great play out of revenues from pursuing a niche strategy.

China’s trade surplus surges to $11.4bn

China’s trade balance rebounded strongly in April as exports surged and imports came in lower than expected, the FT says. Data released by Beijing on Tuesday showed its trade surplus hit $11.4bn in April, much larger than most analysts expected and far above the surplus of $140m in March. On a seasonally adjusted basis, Chinese exports increased 35.1 per cent in April from the same month a year earlier. The figures are bound to increase US pressure on China to appreciate the renminbi at a faster rate, despite its strongest month of gains this year, Bloomberg reports. Inflation data out tomorrow is expected to reveal 5.2 per cent in April, just shy of 5.4 per cent in March.

 

Pimco raises US government short

Pimco’s Total Return Fund has increased its short bet on debt related to the US government from 3 per cent to 4 per cent, Reuters reports. The move is small but indicates that Bill Gross has not swerved from going bearish on Treasuries on inflation concerns. despite a small rally in the market. Treasuries have returned 0.7 per cent so far in May, says Bloomberg. Pimco dropped its US government holdings to zero earlier this year, including in Treasuries, Treasury futures and options, Tips and agency debt. The fund has meanwhile also increased its cash holdings to 37 per cent in April from 31 per cent, the WSJ says.

BofA scrambles to cut bad loans

Bank of America plans to halve its $850bn portfolio of troubled home loans over the next three years as it rushes to resolve problems related to the housing crisis and the purchase of Countrywide Financial, the FT reports. Mortgages that originated with Countrywide and are no longer offered by BofA are to be run off, modified or sold at discount prices. The modification process will also be streamlined to deal with the high rates of delinquency within the portfolio. Uncertainty over the size of mortgage losses facing BofA has dominated the bank’s stock, especially with $17bn of losses already booked from Countrywide since the 2009 acquisition, the FT adds.

Roubini’s guide to a Greek debt restructuring

Cut, paste and mail to your favourite holder of Hellenic debt:

 Read more

Microsoft makes $8.5bn deal for Skype

Microsoft will acquire Skype in a deal valuing the internet phone company at $8.5bn including debt, people familiar with the matter have told the FT. The acquisition would be Microsoft’s biggest ever, marking another step in the company’s campaign to diversify beyond Windows and Office to internet-based offerings, the WSJ says. Skype investors have been pushing for a sale due to the company’s delayed IPO, says GigaOM, noting that Microsoft’s biggest benefit from the deal is to make Windows Phone 7 software competitive against rivals. But Microsoft is overpaying for a company that cannot squeeze profit from 663 million users and is not a natural fit, reports TechCrunch.

Off the Pace [updated]

Surely heads are going to roll at UK-based Pace.

The world’s biggest maker of television set-top boxes has followed March’s disingenuous results statement with a profits warning on Tuesday morning that has knocked a third from its share price: Read more

Further reading

Elsewhere on Tuesday,

- Counting the (central bank) costs of kicking the Greek debt can.
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Pink picks

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

Philip Stephens: The Catalan secret of Salmond’s success
It would be premature to tear up the map of the United Kingdom. After the nationalists’ storming of the Edinburgh parliament it would be just as unwise to assume the future of Scotland’s 300-year-old union with England is secure, explains FT columnist Philip Stephens. The election victory of Alex Salmond’s Scottish Nationalist Party was the latest chapter in the story of a remarkable rise. Mr Salmond, once stranded on the political fringe, has turned the SNP into the party of the Scottish establishment. Nationalism is now as fashionable among business leaders, entrepreneurs and well-heeled professionals as it has always been attractive to those Scots who nurse history’s grudges. Read more

Snap news

Breaking pre-market news on Tuesday,

- Microsoft close to deal to buy Skype — reportRead more