Posts from Wednesday Feb 5 2014

The Closer


- Tim Duy on whether tapering is tightening. Read more

Twitter earnings report beats analyst expectations, disappoints normal-people expectations


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A Puerto Rico downgrade cheat sheet

This short note from Nuveen is the best quick way we’ve come across to catch up on the Puerto Rico downgrade situation (click for pdf):

As an even shorter version for the attention-impaired, we’ve picked the main points and summarise them here: Read more

The Buffett derivative mystery gets more exotic

In the comments on our last piece on Berkshire Hathaway’s very large derivative contracts we and Professor Pablo Triana learned that Warren Buffett treats the put options he sold between 2004 and 2008 as hard-to-value Level 3 liabilities that must be marked-to-model (or myth). See page 84 in the 2009 annual report.

That helps to explain why the quarterly mark-to-market losses Berkshire reported on the contracts were not larger, given big moves in currencies and equity indices in 2008 and 2009. But in resolving one mystery it created another, because valuing large put options is typically straightforward, even if like Mr Buffett you dislike the theoretical basis for doing so, and Berkshire’s commentary and disclosure has always indicated that the contracts are of the plain vanilla variety.

This has prompted the good professor to come back with a new question: so what kind of puts did Warren Buffett sell, exactly? And in trying to answer it he has found that to Lehman Brothers at least, Berkshire appears to have sold some exotic derivatives indeed (which would raise another question, were they properly disclosed?). Read more

This is nuts. When’s the crash?

London prime property vendor finance, vignette #1:

Luxury property developer Christian Candy has lent more than £300m in the past year to wealthy London housebuyers, in a bid to profit from the banks’ withdrawal from the market, and aims to take his total lending to £1bn by the end of this year…

Last week he lent £25m for the purchase of a £35m private home in Knightsbridge, and he is now in talks to provide £100m for the purchase of a home in north London.

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Hryvnia? We hardly knew ye

Get yourselves an FX reserve-friend, we said…

That’s the Ukrainian hryvnia versus the US dollar on Wednesday — via Reuters. The market’s illiquid and in local trading the rate might have gone through 9. But in case you were curious, the guess is that the fall is down to half political messiness, half general EM messiness — and that it isn’t over. Read more

Markets Live: Wednesday, 5th February, 2014

Live markets commentary from 

Deflation, now vs then

Now vs 2009 that is, when a brief flirtation with deflation in the eurozone proved short lived and provided ammunition for those who deny a Japanese-style outcome–back then the headline inflation rate dropped to -0.6 per cent in July 2009 but was negative for only five months and rebounded to +1.7 per cent only a year later.

However, as we await for the ECB to act or not later in the week, Capital Economics’ Jonathan Loynes took the time to note there are good reasons to think a new bout of deflation could be both longer- lasting and more pernicious than the last one (with his emphasis):

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The (early) Lunch Wrap

Japanese wages fall for 19th month || London Underground workers begin 48-hour strike || The US budget deficit will fall to 3 per cent of economic output this year || Microsoft banks on the cloud under Nadella || Muddy Waters rode shorting wave on Blinkx || Morgan Stanley restates Q4 earnings || JPM resolves civil mortgage claim by paying $614m || Small, and oft weak, banks face TARP hit || Russian oligarchs take battle to NY court || Deutsche Bank fires currency traders || Sony in talks to sell Vaio  Read more

Further reading

Elsewhere on Wednesday,

- Volcker, Bernanke and a moon person.

- The return of the supply side.

- Gangland average is over the rent is too damn high, Southland edition.

- The conservative bias of economic models. Read more

The 6am London Cut

Markets: Asian markets’ half-hearted efforts at a relief rally soon fizzled out as investors remain cautious and fleeting early gains failed to bring indices anywhere close to the levels seen before the emerging market turmoil began. Signs of stability are plentiful, however. Three of the hardest hit currencies in recent weeks – the Turkish lira, the South African rand and the Hungarian forint – led a rebound overnight, strengthening 1.9 per cent, 1.7 per cent and 1.6 per cent respectively against the dollar. (FT’s Global Markets OverviewRead more