Posts from May 2014

Recalcitrant, moi? The courtroom version

On Thursday, we reported on a memo by Cleary Gottlieb, lawyers to Argentina in sovereign debt matters.

The memo suggested that the “best option” for its client would be to default upon its restructured bonds — then to immediately reroute their payments beyond the reach of US courts — should the US Supreme Court decline in the coming weeks to review an order requiring holdouts to be paid too. (Update: full memo here, as a Word doc.)

Which is rather extraordinary advice. The memo also emerged in the week Argentina supposedly showed good faith to the Paris Club. (And in fairness, the memo also considers settling with holdouts).

On Friday, the holdouts’ lawyers beat a path to the courthouse. Read more

Is leveraged lending guidance effective? Yes, no, maybe

Last year the Federal Reserve and the Office of the Comptroller of the Currency issued new leveraged lending guidance designed to discourage big banks from underwriting risky new loans. Off the menu were loans with more than six times leverage, or that exhibited certain signs of weak underwriting or covenants. Since then, the regulators have double-down on the guidance — warning banks they should hardly ever do loans that are unlikely to pass muster.

So, more than a year later, it’s worth asking whether the guidance has had any effect. Read more

The sun isn’t shining and it still sucks to be a CFA candidate

A little over a week from now, thousands of well-groomed zombies will descend on test centres around the globe to sit CFA exams. Some will travel in packs, others go solo. Regardless of grouping, it is strongly advised not to approach them. They haven’t read anything for fun in months and may be dangerous.

For CFA candidates, Saturday June 7th will be the pinnacle of neglecting everything in their life that didn’t have “Schweser” or “CFA Institute” printed on it. It is also at this moment that their relationships with their calculators have never been stronger.

To help get them get through it, FT Alphaville has compiled the following Q&A. Read more

The Europe-based flow monster is under siege

Bank “trading” is all about flow. And in Europe there has never been a bigger flow monster than Deutsche Bank.

But as has been well reported, FICC flow profits are beginning to wane.

So it is with some interest we note the following charts from Morgan Stanley’s European Banking team: Read more

The ‘other’ great bond mispricing theory

A lot of people are puzzled over why US yields are falling when nothing has changed on the Fed communication side, and QE is supposed to be slowing.

Frances Coppola notes an even stranger phenomenon. When you look at the very big picture you realise that if there is a correlation between QE and rates, it’s actually a very counterintuitive one:

Every time QE is announced, yields rise: when it ends, they fall. And no, this doesn’t just affect the 10-year yield. The same basic shape can be observed on just about any maturity over 1 year (short-term rates are propped up by the positive IOER policy).

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NPS Pharma — a suitable fit for Shire?

Seeking to secure its own independence as M&A activity — whether real or rumoured — continues to convulse the pharma sector, Britain’s Shire is believed to be considering a bid for New Jersey-based NPS Pharmaceuticals, a rare disease specialist.

According to usually well informed sources, Shire has been working quietly with advisers and held internal discussions about a potential cash offer for NPS, valuing the US business at just over $4bn. That would imply a bid pitched at around $40 a share,compared with NPS’s $27.50 market quote on Nasdaq on Friday. Read more

No really, does anyone ever read securitisation docs?

We thought we’d ask, given some of the ‘high-level principles’ suggested by the ECB and Bank of England to revive the dead market for securitisation in Europe: Read more

Ah, I see we are firmly in the “what if QE fails” stage of the debate…

… and back on the “buy foreign bonds” option. Never mind the former might never happen, let alone happen when the ECB meets next week and does its best not to disappoint.

From Morgan Stanley’s FX team: Read more

Markets Live: Friday, 30th May, 2014

Live markets commentary from 

The (early) Lunch Wrap

Google bows to EU privacy ruling || Big investors replace banks in $4.2tn repo market || Piketty gives detailed response to FT criticism || Drugs and prostitution add £10bn to UK economy || Former Microsoft chief Steve Ballmer bids $2bn for LA Clippers || Elon Musk plans next stage of space travel with reusable rockets || Markets  Read more

Negative is normal

One day, maybe, companies in Europe will stun those paid to forecast these sort of things with an explosion of profitability. The gusher of earnings will arrive to justify the steady rise in the valuations of companies expected to produce them.

For now though, the story is the same as it has been since 2010: negative revisions. According to the strategy team at Goldman Sachs, what had been hoped for this year was 13 per cent growth in profits, but six months in that has dropped to 7 per cent with the cuts broad based. Actual growth in reported earnings was 1.5 per cent in the first quarter, compared to that which preceded it.

There is hope, or at least explanation, however. It was ever thus: Read more

Further reading

Elsewhere on Friday,

– The sharing economy is great – don’t listen to the naysayers.

Piketty responds.

The rise of Poundland epitomised by its founders pet llamas.

– Liquidity hoarding and the end of QERead more

The 6am London Cut

Camp Alphaville, July 2: We guarantee it won’t rain*. Details here.

Markets: Asia-Pacific equities are poised to finish the week with solid gains. But in spite of another record high on Wall Street achieved in the face of poor GDP data showing the US economy contracted by an annualised 1 per cent, the mood has turned after fresh data provided mixed signals for Japan’s economy. (FT’s Global Markets OverviewRead more

The Closer


– We need a better class of debate on the Scottish referendumRead more

Manager wanted to nurture $288bn. Humility, grace and good humour required

Do you have 15 years of investment experience, are prepared to work in Sacramento, California, for no more than $612,000?

Calpers is hiring (click for the full job spec). Read more

Fordham: Volatile public opinion – Vox Populi – is the new political risk

This is a guest post from Tina Fordham, chief global political analyst at Citi. The full report discussed below is available here.

People power is on the march, for better or worse. Read more

Recalcitrant, moi?

Argentina made a deal with the Paris Club on Thursday. A mere 13 years after defaulting on them.

The scheme offers a framework for a sustainable and definitive solution to the question of arrears due by the Argentine Republic to Paris Club creditors, covering a total stock of arrears of USD 9.7 billion, as of 30 April 2014. It provides a flexible structure for clearance of arrears within five years including a minimum of USD 1150 million to be paid by May 2015, the following payment being due in May 2016…

And yes, this means something to the pari passu saga.

It means that a deal with holdouts is a matter of time. Read more

Strategy, politics and righteous populist anger

We detect a theme. It may be that with financial markets becalmed a new subject is needed. Perhaps it reflects the way Piketty has become an instant bookshop-to-shelf classic, but something has investment strategists reaching for insight from an eighth century theologian.

And those people should not be listened to who keep saying the voice of the people is the voice of God, since the riotousness of the crowd is very close to madness.” — Alcuin to Charlemagne, 798 A.D. Read more

Chinese QE turns American?

Yeah, we know, it’s semantic. China are already the kings of QE. But bear with us for a bit. The nature of their QE may be changing.

From Stephen Green and Becky Liu at Standered Chartered: Read more

Markets Live: Thursday, 29th May, 2014

Live markets commentary from 

The (early) Lunch Wrap

Sisi landslide in Eqypt poll || Academics argue against e-cig restrictions || Ukraine will sign EU pact next month || Profits drop at Tate & Lyle || British Gas head quits || Stocks flat || Bonds at year high Read more

The Still Failing Funding for Lending Scheme

We continue to be utterly bemused by this Bank of England support facility. Here’s net lending to UK businesses and “non-bank credit providers” by FLS extension participants in Q1…

 Read more

Further reading

Elsewhere on Thursday,

Follow up on problems in ‘Capital in the 21st Century’.

– The ghosts of Tiananmen.

Cosmetics, toilet paper and rice appropriate lures for female investors in Japan, apparently.

– It’s quiet out thereRead more

The 6am London Cut

Camp Alphaville reminder: For peace, love and higher returns click here.

Markets: Slumping retail sales in Japan and a fall in the price of key commodities put Asia-Pacific markets in a mixed mood. Japanese stocks were driven lower after a report on the nation’s retail sales – a key barometer for the economy – showed a bigger than anticipated drop. (FT’s Global Markets OverviewRead more

The Closer


– Mobile is eating global attentionRead more

Desperately seeking volatility

The curious case of vanishing volatility deepens, with the latest installment coming by way of the oil market.

From Harry Tchilinguirian’s team at BNP Paribas, this is apparently what the death of volatility looks like:

 Read more

FCA 1.1 — Ian Charles Hannam 1

We feel sympathy for the FCA. But then, the hole in which it finds itself is of its own digging.

Consider the fresh news. Having spent eight months mulling over the evidence presented in Ian Hannam’s Upper Tribunal appeal against the regulator’s earlier imposition of a £450,000 fine for supposedly passing on inside information, the Upper Tribunal has concurred that Hannam did indeed breach the UK rulebook.

But as is gradually being realised, the rulebook itself is unworkable. It involves pursuing upright citizens for synthetic crimes. Read more

Guest post: When anyone can be a money issuer

By David GW Birch, a director of the secure electronic transactions consultancy, Consult Hyperion. Birch was recently named one of Wired magazine’s top 15 global sources of business information.

The Maltese thinker Edward de Bono is famous, to older readers, for having originated the concept of “lateral thinking” back in the 1960s. He has a long track record of trying to bring new thinking to old problems.

In 2000, de Bono advised a UK Foreign Office committee that the Arab–Israeli conflict might be due, in part, to low levels of zinc found in people who eat unleavened bread (e.g. pita flatbread), a known side-effect of which is aggression. He suggested shipping out jars of Marmite to compensate.

 Read more

HFT, bitcoin and the path towards mouse designed meta-experimentation

We’ve been wondering about the consequences of paradoxical markets here at FT Alphaville, especially as financial information systems run into the laws of physics. (How does an HFT trader, for example, gain an advantage when he’s already approaching the speed of light, which presumably counts as the universal circuit breaker?)

Might markets inadvertently replace the Large Hadron Collider as the world’s largest physics experiment? You know, like in Hitchhiker’s Guide to the Galaxy where the greatest computer of all time was in fact a computational matrix designed to calculate the ultimate question to life, the universe, and everything but which happened to incorporate unwitting living beings in the experiment. It was also programmed by mice and better known as the EarthRead more

Rothschilds look for $30tn capitalism fix

There was no bald supervillain stroking a white cat, but other than that the City of London hosted a conspiracy theorists’ perfect scenario yesterday: a meeting organised by the Rothschilds, sponsored by the Rockefellers and with managers of $30tn, or more than a tenth of all financial assets worldwide, in the room. Even the British royal family was represented, essential for any decent conspiracy, although usually Prince Philip is preferred to the Prince of Wales.

Perhaps there were shape-shifting reptilians present, as per David Icke. But if so, they were keeping their heads down: rather than discussing how to rule the world, the focus was on “inclusive capitalism”. Read more