Posts from Friday Aug 10 2012

The Weekender

This week on FT Alphaville,

– The week began with more bad news from Knight CapitalRead more

Who’s “buying” this rally?

Assigning specific causes to stock market swings is always a mug’s game, and doubly so in summer when volumes have cratered — especially this year.

Intuitively we know this. Yet after this month’s rally, it’s still hard not to wonder just why the S&P remains up more than 11 per cent this year, and roughly 25 per cent over the past twelve months, given that the macro data has been mostly disappointed in the last few months and that the earnings picture has worsened (same with earnings guidance). Read more

Still waiting on looser lending standards (for mortgages)

In our preview of the last FOMC meeting, in discussing the possibility of mortgage-backed securities included in any further asset purchases, we noted the low net supply of MBS and a recent history of settlement fails when the Fed increases its share.

There is a risk, therefore, that the size of QE3 might disappoint expectations depending on how worried the Fed is about market disruptions. Read more

Jumpkick their football clubs

Post-debut, at pixel time Manchester United shares were clinging to the $14 listing price like the Glazers to Old Trafford. (The stock was $14.06 as we went to pub.) Read more

Investors capitulate, investing in bonds while Europe takes a nap

It’s a trend of late. Beaten up investors struggle to cope with the unique brand of uncertainty that has come with a financial crisis and a sovereign debt crisis. They twitch at the thought of daring to dip into equities, and instead run into the increasingly expensive arms of a choice few safe haven government bonds. Hungry for the yield that such bonds cannot offer them, they move, cautiously, into corporate bonds too.

Or as Hans Mikkelsen at Bank of America Merrill Lynch put it (emphasis ours): Read more

Libor, meet transaction data. Transaction data, meet Libor

Ever wondered just how many Libor rates are kinda… more or less… fictional? In the sense that sure, maybe a bank “could” borrow there, but they don’t tend to.

The initial discussion paper of the Wheatley Review of Libor, has some nice graphics on exactly this topic. Read more

The opportunity cost of hoarding cash is lower than you think

Corporates have been hoarding increasing levels of cash since the start of the finanical crisis. Investors tend to frown on it, (see Apple’s cash pile) but are the alternatives really that much better? UBS has done some number crunching and found that the opportunity cost of higher cash levels is lower than you might expect, although the best way for corporates to improve return on equity is to buy back equity.

First, a quick note on methodology. Stephane Deo, Ramin Nakisa and Rob Mellor used data from ‘World Inc’, a UBS construct which provides consolidated financial statements for global sectors and markets, as though they were a single company — with the bottom-up numbers supplied by UBS industry analysts around the world. Read more

Luxury you wear vs luxury you can drink

John Hempton of Bronte Capital was gobsmacked this week when Richemont, the Swiss-based luxury goods group, warned that profits in the first half were likely to be rather better than the market was expecting.

Hempton was short the stock on the sensible view that in the wake of the Bo scandal in China, Chinese kleptocrats were less likely to be adorning their wrists with things like Vacheron Constantin watchesRead more

3D Printing: Rise of the machines

Cheap labour isn’t forever. The act of taking advantage of it enriches the work force over time. At least, that’s what should happen.

As America proved, a work force can, in effect, end up aiding its own overall decline due to a lack of competitiveness on wages and pensions. That sort of rigidity, whether good or bad, isn’t the only thing that can lead to a decline in manufacturing employment. Automation can too. Read more

Beyond Libor (Updated)

You’ll have read a preview of this here, but the plan of action for reforming or replacing the London Inter Bank Offered Rate has now been mapped out by the incoming boss of the Financial Conduct Authority, Martin Wheatley, is now out.

Don’t get too excited. Read more

The (early) Lunch Wrap

Good morning New York…


Bargain hunting for quality in Europe

What do we want (in a low growth environment with considerable macro risk)?!

— Better than market returns on equity and strong balance sheets with above average free cash flow yieldsRead more

On Greece and spilt milk

The drum beat of Euro grandees hinting that Greece should just get out of the Eurozone is getting louder once more. Here’s former Bundesbanker Otmar Issing discussing the matter in simple language for the audience of CNBC…

Click to view. Read more

Further reading

Elsewhere on Friday,

– Marc Faber turns his attention to Australia. Read more

The 6am Cut London

China’s export growth slowed much faster than expected in July. Year-on-year growth for the month was 1% compared with consensus forecasts of 8%. Imports rose 4.7% against expectations of 7%. The trade surplus narrowed from $25.1bn from $31.7bn in June. Asian stocks extended losses after the data was released  (Bloomberg).

“The US Department of Justice has decided not to charge Goldman Sachs or any of its employees following a high-profile investigation of the bank’s subprime mortgage deals, including the infamous “Abacus”.” The DoJ spent a year reviewing a report by the Senate subcommittee on investigations completed last year, after a request from committee chair Carl Levin. However it said “…based on the law and evidence as they exist at this time, there is not a viable basis to bring criminal prosecution…” (Financial Times). Read more