Markets live chat transcript for the chat ending at 12:13 on 19 Dec 2008. Participants in this chat were: Paul Murphy, FT (PM) Neil Hume, FT (NH)
PM:
hi there
PM:
Welcome to Markets Live
PM:
On the run down to Xmas
PM:
All over the shop this morning
PM:
It was the FT Xmas bash last night
PM:
neil wasn’t going to go — and then he did
NH:
Yeah, bad move that.
NH:
Should have gone home to bed
PM:
I have pictures you know Neil
NH:
OMG
PM:
There’s a lovely one of you standing on the chairs dancing
PM:
Next to Alida — she looks lovely, you are just a blur
NH:
well, I feel quite a blur this morning
NH:
it all got quite wild by the end
NH:
people dancing on tables
NH:
lots of hands in the air
NH:
good fun
NH:
but let’s loose the photos
PM:
Anyway do we start – ive spent all morning jsut trying to catch up
PM:
markets a mess
PM:
Equities well down
NH:
it is, we had a big, big expiry this morning
PM:
yep
PM:
how’s the Footsie looking currently?
NH:
FTSE 100 down 77.9 points at 4,252
PM:
been lower tho — no?
NH:
yep, I think it was down a 100 points at one stage
11:07AM
NH:
miners doing most of the damage
NH:
here’s a flavour of what’s happening
Xstrata (XTA:LSE): Last: 661.50, down 66.5 (-9.13%), High: 714.00, Low: 656.00, Volume: 3.11m
Vedanta Resources (VED:LSE): Last: 613.50, down 51.5 (-7.74%), High: 657.00, Low: 609.50, Volume: 600.35k
Anglo American (AAL:LSE): Last: 1,477, down 115 (-7.22%), High: 1,584, Low: 1,471, Volume: 4.65m
Antofagasta (ANTO:LSE): Last: 388.00, down 33.25 (-7.89%), High: 416.25, Low: 383.00, Volume: 1.80m
BHP Billiton (BLT:LSE): Last: 1,206, down 52 (-4.13%), High: 1,238, Low: 1,179, Volume: 5.85m
Eurasian Natural Resources Corp (ENRC:LSE): Last: 304.50, down 23.5 (-7.16%), High: 326.00, Low: 303.25, Volume: 679.64k
PM:
So — a generalised mining wipeout
NH:
well
NH:
a mini one
PM:
caused by?
NH:
commodity prices which
NH:
have been rubbish
NH:
copper hit a four year low yesterday
NH:
but I think it has rebounded this morning
NH:
but there are also a couple of negative broker notes around this morning
PM:
global slowdown fears?
NH:
there’s one out of UBS that will not go down well at Xstrata
PM:
really?
NH:
yep
NH:
they are focusing on the balance sheet
NH:
and think the company could breach its banking covenants
PM:
NH:
now, Xstrata has been very pro-active in ‘educating’ people about its debts and covenants
PM:
pro-active — ha 
NH:
so it will be interesting to see what happens here
PM:
have we got the note?
NH:
of course
NH:
here it is
NH:
titled
NH:
A Business Model on Ice
PM:
Nice
NH:
Downgrading our earnings in 2008E by 16%and 2009E by 85%
PM:
NH:
We have downgraded our 2008E earnings by 16%, mainly due to a higher than expected –ve
impact from provisional pricing on copper, which we estimate will reduce EBITDA by
c.US$990m. We have lowered our coal price forecasts and trimmed our volumes for 2009E,
leading to an 85% downgrade to EPS. We believe that consensus EBITDA for both 2008/09E of
c..US$11.1/8.4bn is still too high and is likely to come down further in the next few weeks.
impact from provisional pricing on copper, which we estimate will reduce EBITDA by
c.US$990m. We have lowered our coal price forecasts and trimmed our volumes for 2009E,
leading to an 85% downgrade to EPS. We believe that consensus EBITDA for both 2008/09E of
c..US$11.1/8.4bn is still too high and is likely to come down further in the next few weeks.
NH:
Debt covenants are tight for Dec’09E
Xstrata has a very tight debt covenant of 3x gross debt to EBITDA on c.US$10bn bank loans.
We think there is a possibility that Xstrata may breach this covenant in Dec’08E. As a result we
have cut our capex forecasts by c.50% and 1/3rd in ‘08E and 09E, as well as cutting the final
dividend in ‘08E and the entire dividend in ‘09E. Our current forecast ‘09E net debt/EBITDA ratio i.s 3.3x.
Xstrata has a very tight debt covenant of 3x gross debt to EBITDA on c.US$10bn bank loans.
We think there is a possibility that Xstrata may breach this covenant in Dec’08E. As a result we
have cut our capex forecasts by c.50% and 1/3rd in ‘08E and 09E, as well as cutting the final
dividend in ‘08E and the entire dividend in ‘09E. Our current forecast ‘09E net debt/EBITDA ratio i.s 3.3x.
NH:
Acquisition growth on ice
Xstrata’s investment case rests on its ability to grow from acquisitions. We believe this strategy
is effectively “on ice” until 2011E, when we estimate Xstrata may be in a position to term out its
U.S$6bn repayment due in that year. Valuation: End’09E NPV of US$33.04/share (8% d.r.)
We are downgrading our rating to Neutral from Buy, and our price target to £8.00. Our price
target is based on c.0.4x our end 09E NPV. This represents a 20% discount to our target
multiple for Rio as we believe Rio has the better asset quality and is in a better position to
manage its debt situation.
Xstrata’s investment case rests on its ability to grow from acquisitions. We believe this strategy
is effectively “on ice” until 2011E, when we estimate Xstrata may be in a position to term out its
U.S$6bn repayment due in that year. Valuation: End’09E NPV of US$33.04/share (8% d.r.)
We are downgrading our rating to Neutral from Buy, and our price target to £8.00. Our price
target is based on c.0.4x our end 09E NPV. This represents a 20% discount to our target
multiple for Rio as we believe Rio has the better asset quality and is in a better position to
manage its debt situation.
NH:
now the most interesting thing in the UBS note for me
NH:
is not the debt
NH:
we all know about that
NH:
but the forecasts for coking coal
NH:
which are incredibly bearish
NH:
in fact if the price does get down there
NH:
a lot of companies are going to be in trouble
PM:
what’s the forecast?
NH:
hang on, here’s the second bit to the note
NH:
Coal prices cut by circa 45% in 2009
NH:
Our commodity team have cut their 2009 coal price forecasts by 40% for thermal and 53% for
coking coal. We are now forecasting the benchmark contract price in 2009 to be US$60/t for
thermal and US$85/t for coking – our estimate of the marginal cost of production. This is lower
than the current spot thermal coal price of US$80/t. The 2010 forecasts are also lower – 11% for
t.hermal and 12% for coking
coking coal. We are now forecasting the benchmark contract price in 2009 to be US$60/t for
thermal and US$85/t for coking – our estimate of the marginal cost of production. This is lower
than the current spot thermal coal price of US$80/t. The 2010 forecasts are also lower – 11% for
t.hermal and 12% for coking
NH:
Coal contributes between 19% and 68% of ’09E EBITDA for diversifieds
Coal is now a significant earnings contributor to the large 4 diversified miners listed in the UK –
even more importantly for 3 of them (Anglo, Rio and Xstrata) it is also a significant cash
generator. Price weakness will apply even more pressure on overstretched balance sheets. We
forecast coal will contribute 68% of Xstrata’s 2009 EBITDA – 37% for Anglo, 24% for BHP and 19% for Rio. We have also lowered volumes but believe the risk of further cuts remain
e.specially in Q1’09 ahead of the new, lowered priced contracts are settled from April 1st.
Coal is now a significant earnings contributor to the large 4 diversified miners listed in the UK –
even more importantly for 3 of them (Anglo, Rio and Xstrata) it is also a significant cash
generator. Price weakness will apply even more pressure on overstretched balance sheets. We
forecast coal will contribute 68% of Xstrata’s 2009 EBITDA – 37% for Anglo, 24% for BHP and 19% for Rio. We have also lowered volumes but believe the risk of further cuts remain
e.specially in Q1’09 ahead of the new, lowered priced contracts are settled from April 1st.
NH:
Lower ’09E EPS by 12% to 45% on coal alone
Following these coal price revisions we are lowering our 2009E EPS by 32% for Anglo, 16% for
BHP, 12% for Rio and 45% for Xstrata. We have made other cuts to Anglo and Xstrata –
d.etailed in separate notes. The total EPS cut for BHP is 27% and 6% for Rio. We prefer BHP over Anglo and Rio over Xstrata
We are lowering target prices across the board – we are also downgrading ratings on Anglo to
Neutral (with a Short-term Sell based on valuations) and Xstrata to Neutral.
Following these coal price revisions we are lowering our 2009E EPS by 32% for Anglo, 16% for
BHP, 12% for Rio and 45% for Xstrata. We have made other cuts to Anglo and Xstrata –
d.etailed in separate notes. The total EPS cut for BHP is 27% and 6% for Rio. We prefer BHP over Anglo and Rio over Xstrata
We are lowering target prices across the board – we are also downgrading ratings on Anglo to
Neutral (with a Short-term Sell based on valuations) and Xstrata to Neutral.
NH:
(FKA – Arsenal)
PM:
So jsut to be clear — UBS saying the company will have to put its development plans on ice — not that the business is on thin ice.
NH:
perish the thought that anyone would think otherwise
PM:
But it is sseriously bearish
NH:
it is
NH:
actually on coal
NH:
there a small cap mining company called Caledon
NH:
issued a big profits warning yesterday
NH:
and what’s interesting is that Xstrata/Glencore market the company’s coal
NH:
and judging by their comments
NH:
things must be pretty bleak
NH:
here’s yesterday’s statement from Caledon
NH:
(thanks FKA)
NH:
Operational Update and Closure of London Office
NH:
2008 sales forecast 460,000t
NH:
2009 sales guidance revised down due to market outlook
London office to be closed and functions transferred to Brisbane office
In an analyst presentation posted on the Caledon website on 18 November 2008 the Company forecast saleable production of 500kt for 2008 and 900kt for 2009.
London office to be closed and functions transferred to Brisbane office
In an analyst presentation posted on the Caledon website on 18 November 2008 the Company forecast saleable production of 500kt for 2008 and 900kt for 2009.
NH:
Due to production constraints the Company’s revised sales forecast for 2008 is now 460kt.
NH:
In addition, due to the very significant deterioration in the market outlook for coking coal over the past month, the Company is now revising its 2009 production target downwards.
In this regard the Company now believes it is prudent to forecast a minimum of 400kt of saleable production for 2009, with greater sales possible if market conditions improve. The Company’s immediate focus is on cost reduction and cash conservation.
In line with this focus, the Board has decided to transfer the functions currently performed within the Company’s London office to existing finance staff in Brisbane and terminate the lease on its Hudson House offices. This decision will result in the redundancy of three staff in London.
PM:
Hmmm…thanks for that
11:14AM
NH:
while we are on the miners
NH:
also should point out that Cazenove has turned bearish on the sector this morning
NH:
they were previously quite positive
NH:
so that has not helped sentiment
NH:
Diversified miners – taking the knife to volumes and capex (sector Neutral)
Relative performance of the big four has in our view had very little to do with valuations, with the market focused firmly on balance sheets. The difference in performance between the haves and the have-nots has been startling
Relative performance of the big four has in our view had very little to do with valuations, with the market focused firmly on balance sheets. The difference in performance between the haves and the have-nots has been startling
* EPS momentum has overall been negative due to commodities and currencies. Another noticeable trend is volume cuts. We still feel there could be further to go particularly for the diversifieds.
NH:
* forecasts are becoming increasingly difficult to make – we have adopted a blanket assumption for steelmaking raw materials of a 15% volume cut in 2009. We then assume 2010 volumes to return to similar levels as 2008. Earnings downgrades are material.
* in a shrinking volume environment the sensitivity of the higher geared companies’ earnings to prices gets ever more extreme e.g. XTA 22% change in 09 EPS for every 10% chg in thermal coal; RIO 16% for every 10% on iron ore.
* in a shrinking volume environment the sensitivity of the higher geared companies’ earnings to prices gets ever more extreme e.g. XTA 22% change in 09 EPS for every 10% chg in thermal coal; RIO 16% for every 10% on iron ore.
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
NH:
We continue to believe the sensible strategy is to retain a defensive portfolio for the moment with stock selection premised on balance sheet strength and position on the cost curve. We therefore retain our Outperform on BHP Billiton [BLT LN BLT.L 1269p] for whom, we believe, the next 12 months must present an abundance of opportunities. We retain In-line recommendations on Rio Tinto [RIO LN RIO.L 1584p] and Xstrata [XTA LN XTA.L 730p].
However Anglo American’s [AAL LN AAL.L 1622p] earnings have been hit hard by the effect of our volume changes and balance sheet adjustment leaving it trading on full multiples based on increasingly South African focused earnings (50%+).
We are therefore downgrading our recommendation from OUTPERFORM to IN-LINE.
NH:
and one more thing
NH:
the quarterly changes to the FTSE 100
NH:
take effect after the close of business today
NH:
and one company that is going in is Randgold Resources
NH:
stock has had a good run
NH:
but trades on an absolutely astronomical rating
NH:
not that that has prevented Merrill Lynch
NH:
from issuing a big buy note
NH:
Index buying pushes Randgold higher
Randgold’s relative out-performance in the gold space over the last two weeks is
partly explained by fresh buying from index tracker funds on the back of the
stocks entrance into the FSTE 100, which was confirmed on 10 December 2008.
Randgold’s relative out-performance in the gold space over the last two weeks is
partly explained by fresh buying from index tracker funds on the back of the
stocks entrance into the FSTE 100, which was confirmed on 10 December 2008.
NH:
Randgold Resources BUY, price target 3,300p
From a valuation perspective Randgold’s current P/NPV multiple stands at around
2.0x, while our upgraded price target of 3,300p (was 2,800p) corresponds to a target
multiple of 2.30x. This is set at a 10% discount to the implied target multiple of Agnico-
Eagle (US$45.84, B-1-7), explained by Randgold’s higher political risk and residual
hedge at Loulo. Looking towards 2009, we highlight the high gearing Randgold enjoys
to the gold price and its leverage to the oil price at its Mali operations which are run on
diesel generators. It has no debt and with >USD250 million cash on the balance sheet
and strong revenue streams we believe it has sufficient resources to develop its next
mine, Tongon, without the need of external funding.
From a valuation perspective Randgold’s current P/NPV multiple stands at around
2.0x, while our upgraded price target of 3,300p (was 2,800p) corresponds to a target
multiple of 2.30x. This is set at a 10% discount to the implied target multiple of Agnico-
Eagle (US$45.84, B-1-7), explained by Randgold’s higher political risk and residual
hedge at Loulo. Looking towards 2009, we highlight the high gearing Randgold enjoys
to the gold price and its leverage to the oil price at its Mali operations which are run on
diesel generators. It has no debt and with >USD250 million cash on the balance sheet
and strong revenue streams we believe it has sufficient resources to develop its next
mine, Tongon, without the need of external funding.
NH:
Positive outlook on gold
Although gold is now tracking back from its recent attempt to breach $900/oz, we
have a positive outlook towards the metal and while the first half of 2009 could
see the commodity face headwinds from a resurgent dollar (based on the fact that
safe haven assets such as US Treasuries are denominated in USD), its fortunes
are anticipated to reverse in the second half of the year. Behind the broader
“currency drivers”, gold’s safe haven status and positive underlying fundamentals
(low field central bank sales and stagnant mine supply) should keep the metal
around the $800/oz level, which we consider as a reasonable “floor” price.
11:16AM
NH:
Right, Paul is with our lawyer, Julie
NH:
all looks quite serious
NH:
he is signing something
NH:
come on Paul, what is it?
PM:
Sorry about that
PM:
had to sign an affidavit
NH:
not a P45 then
PM:
not yet
PM:
To do with Crock
Readers may also know this former bank as Northern Rock.
PM:
Can you believe that we are STILL sorting that
NH:
(Man Utd get Inter. Ha. Come on Jose)
NH:
so, it was about Anglo Irish then?
PM:
No no…
PM:
Extraordinary that
NH:
it is
NH:
do we have to be careful what we say here?
PM:
Nah — just about treatment of the Crock docs — the sales prospectus for Project Wing
NH:
ar, the one we were injuncted over
PM:
We destroyed the docs – obviously
PM:
Cos we have to protect sources, etc
NH:
what about Anglo Irish though
NH:
how’s the lawyer about that?
PM:
Fine
PM:
thinik tracy is just putting a post up on the matter on the home page
NH:
called Anglo Irish Piggy Bank
PM:
So this chairman was loaning himself 87m euros
PM:
And then moving the loan to an unnamed back before the year end
PM:
As a result details of the loan were not disclosed in the annual report
PM:
And this was not illegal and not against Irish banking regs
NH:
but it has cost him his job
PM:
Well, yeah
NH:
and he was the man who made anglo irish what is or isn’t today
PM:
yes — and its not easy to say whether that is a good thing or bad
NH:
well, I wonder what else the new CEO will find
PM:
I’d suggest the there should also be resignations at the Irish regulator
NH:
you sound like Nicola Horlick
PM:
Wots wrong with that?
NH:
nothing at all, obviously
PM:
But look — the regulator discovered this loan arrangement earlier in the year
PM:
And all it suggested was that the loan should be included in the accounts this time
PM:
its been goingn on for eight years
PM:
is that the action of a fit and proper person — chairing a bank?
PM:
Hello?
NH:
i guess not
NH:
anyway, Anglo Irish shares down sharply
NH:
off 12.5% at 0.28
NH:
Bank of Ireland also weak
NH:
down 0.11 at 0.65
PM:
hmm
11:26AM
PM:
just while we are on regulators — see this from the FSA this morning
PM:
FSA to explore more widely the issue of consumer responsibility
The Financial Services Authority (FSA) has today launched a discussion paper on consumer responsibility to explore what steps the regulator or others could take to help consumers understand and protect their own best interests more effectively.
The protection of consumers is one of the FSA’s four statutory objectives, and the regulator adopts a two-pronged approach to achieving its consumer protection and consumer awareness objectives:
it sets, monitors and enforces standards for firms; and
provides – or require others to provide – education, information and advice for consumers.
The Financial Services Authority (FSA) has today launched a discussion paper on consumer responsibility to explore what steps the regulator or others could take to help consumers understand and protect their own best interests more effectively.
The protection of consumers is one of the FSA’s four statutory objectives, and the regulator adopts a two-pronged approach to achieving its consumer protection and consumer awareness objectives:
it sets, monitors and enforces standards for firms; and
provides – or require others to provide – education, information and advice for consumers.
While the FSA has no power to impose responsibilities on consumers, it is required by law to consider the general principle that consumers should take responsibility for their decisions when setting its consumer protection agenda. To this end, the discussion paper aims to provoke debate and bring greater clarity to the FSA’s approach to consumer responsibility.
NH:
so what?
PM:
Well, a few mins later got this from the FSA
PM:
FSA assaults consumer rights
Why is the Financial Services Authority (FSA) focusing on consumer responsibility at a time when large sections of the industry are not giving consumers a fair deal? According to the Financial Services Consumer Panel (FSCP), this is not the time for the FSA to be debating responsibilities for consumers. The Panel is questioning why the FSA is today publishing a Discussion Paper – FSA DP08/5 “Consumer Responsibility” – when consumers have little confidence in the financial services market and even less enthusiasm to engage with it.
Adam Phillips, the FSCP’s Acting Chairman said:
“Clearly, the industry has been putting pressure on the FSA to increase consumer obligations. While we are not arguing with the need for consumers to answer questions honestly and read key information, the FSA document provides an opportunity for the industry to attack consumers’ rights, when it is the industry itself which needs to get its house in order and take responsibility for its actions. Over the past few months we’ve seen consumer confidence fall to unprecedented low levels. It’s also a time when many firms have been exposed as not giving consumers a fair deal, from the selling of Personal Protection Insurance (PPI), to pension transfer advice and dealing with mortgage arrears. We have told the FSA that this is not the time to be discussing consumer responsibility, and we will continue to pursue this line vigorously with the FSA over the coming months.“
Why is the Financial Services Authority (FSA) focusing on consumer responsibility at a time when large sections of the industry are not giving consumers a fair deal? According to the Financial Services Consumer Panel (FSCP), this is not the time for the FSA to be debating responsibilities for consumers. The Panel is questioning why the FSA is today publishing a Discussion Paper – FSA DP08/5 “Consumer Responsibility” – when consumers have little confidence in the financial services market and even less enthusiasm to engage with it.
Adam Phillips, the FSCP’s Acting Chairman said:
“Clearly, the industry has been putting pressure on the FSA to increase consumer obligations. While we are not arguing with the need for consumers to answer questions honestly and read key information, the FSA document provides an opportunity for the industry to attack consumers’ rights, when it is the industry itself which needs to get its house in order and take responsibility for its actions. Over the past few months we’ve seen consumer confidence fall to unprecedented low levels. It’s also a time when many firms have been exposed as not giving consumers a fair deal, from the selling of Personal Protection Insurance (PPI), to pension transfer advice and dealing with mortgage arrears. We have told the FSA that this is not the time to be discussing consumer responsibility, and we will continue to pursue this line vigorously with the FSA over the coming months.“
PM:
So basically, there seems to have been agreement round at the FSA and one of its overseers – the FSCP – that they’d have a row in public over consumer rights.
NH:
What are they trying to do? It’s like they’re trying to make a synthetic debate.
PM:
I know — weird
11:27AM
PM:
what else shall we look at?
NH:
well, I thought this was interesting
NH:
and could have some read across for the rest of the asset management sector
NH:
LONDON/PARIS, Dec 19 (Reuters) – Hedge fund firm GLG Partners is to buy the UK fund management unit of French bank Societe Generale to diversify its business, as the hedge industry faces up to large-scale investor withdrawals.
London-based, New York-listed GLG said its acquisition of SGAM UK, which manages around $8.2 billion in traditional, long-only funds, would be earnings-accretive in 2009 and said it would look for other acquisition opportunities.
NH:
The deal may be a sign that players in the once-booming $1.6 trillion hedge fund industry are keen to find ways to diversify their businesses as investors withdraw their assets. In October investors pulled out a record $40 billion, according to Hedge Fund Research.
“The acquisition of SGAM UK further develops our asset management offering, adding a number of complementary long-only strategies to our existing portfolio range,” GLG Chairman Noam Gottesman said in a statement.
“We continue to look for opportunities to strengthen our business and build our investment franchise.”
PM:
So that’s the business that Horlick used to run
NH:
it is
NH:
and really interesting that GLG are buying into fund management
NH:
at this point in the cycle
PM:
So GLG has had enough of being a hedge fund
NH:
well, obviously because hedge funds are like, so totally last year
NH:
it’s not cool to be a hedgie anymore
PM:
Asset management firm GLG
NH:
The, Fund manager GLG
PM:
Might have to adapt its fee structure tho
NH:
yeah, not sure how 2 and 20 will go down with the Cornish County Council
PM:
NH:
anyway,
NH:
this must be a positive sign for the likes of F&C Asset Management which is up for sale at the moment
NH:
it might even help New Star Asset Management
PM:
steady on
NH:
actually
NH:
from what I hear there are about eight fund management companies up for sales at the moment
NH:
including SG, F&C, New Star
PM:
really
NH:
some big names too
NH:
unfortunately I have not checked them out
NH:
so might be best not to mention it at the moment
11:31AM
NH:
right
NH:
we should turn to the Save Blue Oar Campaign
NH:
and in the interests of balance, I want to point something out
PM:
PM:
Neil’s gone soft
NH:
yesterday’s we put up selected excerpts from the defence document
NH:
the back story here is that Blue Oar are trying to fend off an unwanted offer from former directors
NH:
anyway, we put up a list of companies that raiders – Mr Vandyk and Mr Vaughan – have been involved with but are no insolvent or administration
NH:
anyway
NH:
we should point out
NH:
the list is not comprehensive
PM:
Says who?
NH:
Mr Vandyk
NH:
he puts the number at over 80
PM:
NH:
and there is a very good reason for that
NH:
he is a corporate restructuring expert
NH:
he deals with sick companies
NH:
and sometimes the only humane option
NH:
is to put these companies down
NH:
hence his nickname, Dr Death
NH:
and I think it is fair to say, he enjoys his work
NH:
as morbid as that may sound
PM:
Okay — well I’m still sticking with the Save Blue Oar lobby
NH:
So I am
NH:
but just wanted to note that
11:34AM
NH:
Right do we have anything on the Japanese rate decision
NH:
and these QE hints
PM:
Sorry — my computer is thinking
PM:
made the mistake of searching Lotus Notes
PM:
And the computer has gone -ummmmmmmmmmmmmmmmmmmmmmmmmmm
PM:
ah – hang on can look now
PM:
here’s some snaps from Goldman
PM:
MPM—Following in the Fed’s Footsteps: The BOJ Monetary Policy Meeting (MPM) held on
December 18-19 decided to (1) lower the policy rate, the overnight call rate by 20 bp to 0.1%, (2) cut
the base rate for the supplementary lending facility (Japan’s version of the Lombard) by 20bp to 0.3%,
and (3) maintain the interest rate for the supplementary deposit facility (reserve deposits) at 0.1%,
which is now the same as the policy rate. The policy rate has now fallen to critical point and, like the
Fed, the BOJ is ready to shift policy conduct to full-blooded quantitative easing (see Exhibit 1).
December 18-19 decided to (1) lower the policy rate, the overnight call rate by 20 bp to 0.1%, (2) cut
the base rate for the supplementary lending facility (Japan’s version of the Lombard) by 20bp to 0.3%,
and (3) maintain the interest rate for the supplementary deposit facility (reserve deposits) at 0.1%,
which is now the same as the policy rate. The policy rate has now fallen to critical point and, like the
Fed, the BOJ is ready to shift policy conduct to full-blooded quantitative easing (see Exhibit 1).
PM:
The BOJ will be expanding its outright JGB purchase operations as a quantitative easing measure.
The amount will be increased to ¥1.4 tn/month (currently ¥1.2tn) and therefore ¥16.8tn/year (¥14.4tn).
In addition, the universe will be extended to 30-year, floating-rate note (15-year FRN), and inflationindexed
JGBs (JGBi). We were expecting such expansion to be kept on hold until long rates are
subject to upward pressure. However, the BOJ was probably looking at the potential deterioration in
JGB supply/demand as JGB issuance is
increased to support fiscal spending amid tax
revenue shortfalls.
The amount will be increased to ¥1.4 tn/month (currently ¥1.2tn) and therefore ¥16.8tn/year (¥14.4tn).
In addition, the universe will be extended to 30-year, floating-rate note (15-year FRN), and inflationindexed
JGBs (JGBi). We were expecting such expansion to be kept on hold until long rates are
subject to upward pressure. However, the BOJ was probably looking at the potential deterioration in
JGB supply/demand as JGB issuance is
increased to support fiscal spending amid tax
revenue shortfalls.
PM:
The BOJ is also introducing outright CP
purchasing operations, albeit with an unspecified
time limit and, to facilitate corporate financing
toward the fiscal year-end (1) lowering the rating
criteria for corporate bonds accepted as
collateral from single A upward to triple B
upward and (2) supplying funds for the turn of
the fiscal year at the same rate as the policy rate,
within the bounds of the joint collateral pool.
While such measures were not unexpected in
general, we see them as positive in easing
corporate financial conditions indicating that the
BOJ is embarking on “micro” quantitative easing
as well as “macro”.
purchasing operations, albeit with an unspecified
time limit and, to facilitate corporate financing
toward the fiscal year-end (1) lowering the rating
criteria for corporate bonds accepted as
collateral from single A upward to triple B
upward and (2) supplying funds for the turn of
the fiscal year at the same rate as the policy rate,
within the bounds of the joint collateral pool.
While such measures were not unexpected in
general, we see them as positive in easing
corporate financial conditions indicating that the
BOJ is embarking on “micro” quantitative easing
as well as “macro”.
NH:
sorry, Paul is still have computer problems
NH:
the joys of running Lotus notes on Windows
PM:
give up on that
NH:
ok, let’s move on
NH:
back in hedgie world, have you seen what has happened to Citadel?
PM:
What is this the S&P downgrade?
NH:
it is
NH:
they are probably behind the curve
NH:
but
NH:
nonetheless interesting
NH:
and worth putting up
NH:
TORONTO (Standard & Poor’s) Dec. 18, 2008–Standard & Poor’s Ratings Services
today said it lowered its long- and short-term counterparty credit ratings on
Citadel Kensington Global Strategies Fund Ltd. and Citadel Wellington LLC
(collectively, Kensington/Wellington) to ‘BBB-’ from ‘BBB’. We affirmed the
‘A-3′ short-term credit rating. The outlook is negative. Standard & Poor’s
then withdrew the ratings at the company’s request.
today said it lowered its long- and short-term counterparty credit ratings on
Citadel Kensington Global Strategies Fund Ltd. and Citadel Wellington LLC
(collectively, Kensington/Wellington) to ‘BBB-’ from ‘BBB’. We affirmed the
‘A-3′ short-term credit rating. The outlook is negative. Standard & Poor’s
then withdrew the ratings at the company’s request.
NH:
“The downgrade and negative outlook reflect what we view as
Kensington/Wellington’s weakened position in a rapidly changing operating
environment where its existing business model and portfolio structure are, we
believe, under pressure,” said Standard & Poor’s credit analyst Daniel
Koelsch. The funds we understand are in transition to reposition their
business model in order to benefit from current opportunities and at the same
time manage current risks. More specifically, we understand that complexity of
trading strategies, position sizes, and leverage are being reduced and working
capital and liquidity reserves replenished.
Kensington/Wellington’s weakened position in a rapidly changing operating
environment where its existing business model and portfolio structure are, we
believe, under pressure,” said Standard & Poor’s credit analyst Daniel
Koelsch. The funds we understand are in transition to reposition their
business model in order to benefit from current opportunities and at the same
time manage current risks. More specifically, we understand that complexity of
trading strategies, position sizes, and leverage are being reduced and working
capital and liquidity reserves replenished.
NH:
In addition to the de-risking activities as described above, the
investment-grade ratings still benefit from what we view as
Kensington/Wellington’s strong liquidity management and portfolio construction
capability. Although the funds’ liquidity position has most recently come
under pressure as a result of continuing high investment losses, increasing
funding costs, and margin requirements-in our opinion, strong investor
liquidity provisions, including the right to suspend redemptions indefinitely,
a diverse set of trading and financing relationships, and a strong, pre-funded
liquidity reserve have helped the company to maintain what we view as a sound
liquidity profile and remain at the ‘BBB-’ rating level.
investment-grade ratings still benefit from what we view as
Kensington/Wellington’s strong liquidity management and portfolio construction
capability. Although the funds’ liquidity position has most recently come
under pressure as a result of continuing high investment losses, increasing
funding costs, and margin requirements-in our opinion, strong investor
liquidity provisions, including the right to suspend redemptions indefinitely,
a diverse set of trading and financing relationships, and a strong, pre-funded
liquidity reserve have helped the company to maintain what we view as a sound
liquidity profile and remain at the ‘BBB-’ rating level.
NH:
Citadel Finance currently has about $361.5 million privately issued notes
outstanding that will mature on Dec. 15, 2011. We currently believe,
consistent with the rating level, that Kensington/Wellington’s liquidity
management and asset coverage support timely and full repayment of principal
and interest, including in the event of a complete portfolio wind-down of
Kensington/Wellington. As of Dec. 15, we understand that the funds’ investment
assets (including cash) were about $9 billion, theoretically providing for
about 25x debt coverage.
outstanding that will mature on Dec. 15, 2011. We currently believe,
consistent with the rating level, that Kensington/Wellington’s liquidity
management and asset coverage support timely and full repayment of principal
and interest, including in the event of a complete portfolio wind-down of
Kensington/Wellington. As of Dec. 15, we understand that the funds’ investment
assets (including cash) were about $9 billion, theoretically providing for
about 25x debt coverage.
PM:
Interesting — especially the line
PM:
The outlook is negative. Standard & Poor’s
then withdrew the ratings at the company’s request.
then withdrew the ratings at the company’s request.
NH:
so what is going on here?
PM:
Well — citadel simply responded to the bad news by saying — okay — dont rate us
PM:
11:43AM
NH:
(Praxiss, oddly enough that’s exactly what I told IT. They just won’t listen to me)
PM:
Mika — sorry, slow headed today — which “big3″?
11:44AM
PM:
just got a market abuse thingy out of the FSA
PM:
The Financial Services Authority (FSA) has fined Mr Stewart McKegg and Mr Brian Valentine Taylor for market abuse. Mr McKegg was fined £14,411.25 and Mr Taylor was fined £4,642.50. In both cases this was the disgorgement of profits made on transactions where they had inside information. If it were not for their financial circumstances both would have been fined an additional £20,000.
Mr McKegg and Mr Taylor were private investors in Amerisur Resources Plc (Amerisur, then known as Chaco Resources Plc). They were individually contacted by Amerisur’s broker on 23 May 2007 to inform them of a placing of Amerisur shares to be announced the following day. This was at a substantial discount to the market price. During the telephone calls they were informed that this was inside information and confidential.
Both committed market abuse by selling some or all of their existing shareholding prior to the public announcement of the placement. They both then rebuilt their position in Amerisur stock by subscribing for discounted shares in the placing.
Mr McKegg and Mr Taylor were private investors in Amerisur Resources Plc (Amerisur, then known as Chaco Resources Plc). They were individually contacted by Amerisur’s broker on 23 May 2007 to inform them of a placing of Amerisur shares to be announced the following day. This was at a substantial discount to the market price. During the telephone calls they were informed that this was inside information and confidential.
Both committed market abuse by selling some or all of their existing shareholding prior to the public announcement of the placement. They both then rebuilt their position in Amerisur stock by subscribing for discounted shares in the placing.
PM:
So they heard about a placing — went short with a view to filling their positions
PM:
A bit amateur eh?
NH:
does appear that way
PM:
Important addition to that
PM:
There is no suggestion of any wrongdoing by Amerisur Resources plc or the firm’s broker, Blue Oar Securities plc.
NH:
oh, no.
NH:
that’s not what they needed
PM:
no — Blue Oar are innocement — like the Brunswick woman in NY
NH:
yeah, amazing story that
NH:
featuring a playboy model too
PM:
Hmmm
PM:
Maria Checa
PM:
you can Google her yourself
PM:
Anyway — sure Brunswick will survive the embarrassment
11:48AM
NH:
right, want to cut to something on our front page this morning
NH:
the Bank of America story
NH:
which I find amazing
PM:
it really is
NH:
basically BoA have pulled the sale of a chunk of their stake in CCB
NH:
because of political pressure
PM:
From Beijing
PM:
Hilarious — you cant sell stock in china
NH:
yeah, you need govt approval to sell
PM:
I think we have a system message on this somewhere
PM:
china take
The Truth! Unvarnished. The price of rice always falls. Shanghai investors do not sell stocks. Torch protestors are vile.
PM:
yes!
PM:
Ken Lewis should have read that first
NH:
of course, this news will not have gone down well at RBS
NH:
or HM Treasury for that matter
PM:
Sure — Chinese banks are suddenly illiquid assets
NH:
RBS has a stake in Bank of China
PM:
Write downs please?
NH:
and also they can’t sell it
NH:
to help bolster their shredded balance sheet
NH:
here’s Bruce Packard at Evolution on the subject
NH:
BoA shelves plans for sale of China Construction Bank stake
NH:
Implications for RBS (Reduce TP 18p)
EVO TAKE – The sale of RBS insurance business, suggested to be worth £7bn at the time of the first rights issue in April, has stalled. The BoA announcement suggests RBS may also find selling its £1.3bn stake in Bank of China difficult.
EVO TAKE – The sale of RBS insurance business, suggested to be worth £7bn at the time of the first rights issue in April, has stalled. The BoA announcement suggests RBS may also find selling its £1.3bn stake in Bank of China difficult.
NH:
DETAILS – The FT reports Bank of America has shelved a $3bn (€2.1bn) sale of China Construction Bank stock following objections from Beijing, igniting fears that some cash-strapped overseas banks could struggle to offload their lucrative holdings in the country’s banks. RBS holds a 4.3 per cent stake in Bank of China that could raise more than £1.3bn ($2bn) if sold after the lock-in period expires this month, the original cost was £800m.
NH:
VALUATION AND RECOMMENDATION – The sale of the BoC stake might be perceived as a “catalyst” for RBS. However, even if it does sell the stake, we disagree that this is central to the investment case. We think the main driver of the share price will be falling profitability and the £1.7 trillion balance sheet is likely to shrink for the next few years. Rec is reduce TP 18p.
NH:
check the 18p price target
NH:
what are RBS shares doing?
PM:
Doing what the usually do – -going down
PM:
Price is off 3.8p at 42.7
PM:
But look at the UK banks AGAIN
PM:
Lloyds is off 7p at 118
NH:
that and RBS will end up nationalised IMO
PM:
its as tho the market is increasingly betting that this entire sector is nationalised
NH:
yep
NH:
and Charlie Bean is of that view too
PM:
Was good interview that in the paper yesterday
PM:
Chris Giles
11:54AM
NH:
we have LIBOR
NH:
DJ 3-Month USD Libor Fixed At 1.4975%, Vs 1.525% Thursday
NH:
DJ 3-Month Sterling Libor Fixed At 2.97813%, Vs 3.005% Thurs
NH:
DJ 3-Month Euro Libor Fixed At 3.07625%, Vs 3.11313% Thursday
11:55AM
NH:
and look our great leader Gordo has been talking
NH:
about the GBK
NH:
says day to day movements of the GBK are not worth giving a running commentary on
11:57AM
PM:
Goldman story mentioned below — rather fun
PM:
Was in the Journali i believe
PM:
HONG KONG — A face-off with a small Chinese power company over its losses on oil-related derivatives is turning into a big headache for Goldman Sachs Group Inc., a counterparty for a number of such trades in China.
Arguing that the transactions with the Wall Street firm were “unauthorized,” Shenzhen Nanshan Power Station Co. is refusing to pay Goldman for the losses it has incurred, which people familiar with the situation said amount to tens of millions of dollars.
The sum at stake is small compared with losses at some other companies that hedged their oil exposure, but the downside could be significant for Goldman. Its Singapore commodities unit, J. Aron & Co., has acted as counterparty for several Chinese companies that are claiming bigger losses from oil hedging, including Air China Ltd. and China Eastern Airlines Corp. Although these companies aren’t disputing their recent losses, offering Shenzhen Nanshan a break could set a precedent for Goldman if ever confronted in the future by other corporate clients.
We are confident that these contracts are valid, and that we will reach a resolution with the company,” said a spokesman for Goldman. In a statement Dec. 13, Shenzhen Nanshan said it is in negotiations with Goldman to resolve the impasse, but noted, “It cannot be ruled out that if the negotiations aren’t successful, it is possible both sides may pursue legal channels to resolve their dispute.” Executives at the company declined to comment.
Even if Goldman were to take and win legal action against Shenzhen Nanshan, enforcing such judgments can often be problematic in China, and the power company has no significant assets overseas.
Arguing that the transactions with the Wall Street firm were “unauthorized,” Shenzhen Nanshan Power Station Co. is refusing to pay Goldman for the losses it has incurred, which people familiar with the situation said amount to tens of millions of dollars.
The sum at stake is small compared with losses at some other companies that hedged their oil exposure, but the downside could be significant for Goldman. Its Singapore commodities unit, J. Aron & Co., has acted as counterparty for several Chinese companies that are claiming bigger losses from oil hedging, including Air China Ltd. and China Eastern Airlines Corp. Although these companies aren’t disputing their recent losses, offering Shenzhen Nanshan a break could set a precedent for Goldman if ever confronted in the future by other corporate clients.
We are confident that these contracts are valid, and that we will reach a resolution with the company,” said a spokesman for Goldman. In a statement Dec. 13, Shenzhen Nanshan said it is in negotiations with Goldman to resolve the impasse, but noted, “It cannot be ruled out that if the negotiations aren’t successful, it is possible both sides may pursue legal channels to resolve their dispute.” Executives at the company declined to comment.
Even if Goldman were to take and win legal action against Shenzhen Nanshan, enforcing such judgments can often be problematic in China, and the power company has no significant assets overseas.
PM:
i find it hilarious that grown up western banks through the Chinese would play capitalism according to Western rules
PM:
Its as tho they never actually visited Shanghai before hand
12:00PM
PM:
Okay
PM:
We were about off, but then Neil found something to be cruel over
NH:
yes this
NH:
from Mike Lenhoff at Brewin Dolphin
NH:
check his FTSE 100 target for 2008
NH:
A year of false starts, damp squibs, constant disappointment and much consternation, not to mention all
that wealth destruction, is enough to make any stale bull hesitant about calling the upside to equity
markets. That said, I think there is a case for thinking that equity markets could end 2009 on an upbeat,
but let me own up to a certain past first.
that wealth destruction, is enough to make any stale bull hesitant about calling the upside to equity
markets. That said, I think there is a case for thinking that equity markets could end 2009 on an upbeat,
but let me own up to a certain past first.
NH:
This time last year I set my FTSE 100 forecast at 7200 for end 2008 and offered three reasons for that
fanciful expectation. The first was interest rates. I hadn’t imagined zero interest rates but I thought they
would be lower sooner rather than later. Commodity prices – oil especially – got in the way. They pushed
inflation to levels beyond central bank targets, although as a policy consideration, this was more
relevant in the UK and the eurozone than in the US
fanciful expectation. The first was interest rates. I hadn’t imagined zero interest rates but I thought they
would be lower sooner rather than later. Commodity prices – oil especially – got in the way. They pushed
inflation to levels beyond central bank targets, although as a policy consideration, this was more
relevant in the UK and the eurozone than in the US
NH:
Second, I thought that by the middle of 2008 we would be looking across the valley to an economic
recovery with better times ahead for earnings. Third, I felt valuations would be underpinned by the much
lower interest rates and the thought of improving earnings expectations. Together, they would feed
momentum and push equity markets onwards and upwards, but it was not to be. Enough of that!
recovery with better times ahead for earnings. Third, I felt valuations would be underpinned by the much
lower interest rates and the thought of improving earnings expectations. Together, they would feed
momentum and push equity markets onwards and upwards, but it was not to be. Enough of that!
NH:
Looking ahead, my initial thought for end 2009 was 4750 for the FTSE 100 – a bit wimpish I know. It was
my end-2003 forecast for where I thought the FTSE 100 would be by at the end of 2004 (Building on
the recovery – the outlook for 2004! 11 December 2003). I had a bit of luck with that one so I was
tempted to give it another go. But then I thought the market could have a decent run in the latter stages
of the year, perhaps to the 5250 area. That was my end-2004 forecast for where I expected the FTSE
100 to be by the end of 2005 (UK equities – looking back, looking forward! 23 December 2004). That
wasn’t such a bad call either so I thought I’d try that one again too
my end-2003 forecast for where I thought the FTSE 100 would be by at the end of 2004 (Building on
the recovery – the outlook for 2004! 11 December 2003). I had a bit of luck with that one so I was
tempted to give it another go. But then I thought the market could have a decent run in the latter stages
of the year, perhaps to the 5250 area. That was my end-2004 forecast for where I expected the FTSE
100 to be by the end of 2005 (UK equities – looking back, looking forward! 23 December 2004). That
wasn’t such a bad call either so I thought I’d try that one again too
NH:
To cut to the chase, I am settling for something in between. Here is my case – three reasons – for
thinking global equity markets could pick up and that the FTSE 100 could rebound up to the 5000 area
by end-2009.
thinking global equity markets could pick up and that the FTSE 100 could rebound up to the 5000 area
by end-2009.
PM:
That’s cruel — poor guy was looking for 7200 on the footsie
PM:
Glass half full sort of guy, Mike Lenhoff
12:02PM
NH:
reader below asking about PRD
NH:
Prodeese Investments
NH:
shares are down
NH:
i imagine in reaction to yesterday’s news from SCG Capital
NH:
prolly fears they will have to take a write down
NH:
in fact investors don’t want anything to do with these opaque investment vehicles at the moment
NH:
in the wake of the Madoff situation
NH:
not sure what the PRD balance sheet is like
NH:
but sentiment seems to have turned against these companies
NH:
and the London market by the looks of things
NH:
FTSE 100 now down 121 points at 4,209
PM:
Hmm
PM:
123
12:04PM
NH:
Somone mentioned former Smug Bank below
NH:
almost below 600p
NH:
wow
PM:
Sick Squid Bank
12:05PM
PM:
Should sake happy second birthday to Naked Capitalism
PM:
Even tho Yves Smith was slagging the FT off the other day
PM:
Very good NC — always worth a read
PM:
Fitz — havent seen anything from Draaima year end yet
NH:
but we do have an Edwards
NH:
And you thought I was mad
..
NH:
This week has seen the bellwether 10y US bond yield rapidly slide towards 2%. Global yields
stand at multi-decade lows. This slump in government bond yields means that another of the
more extreme parts of our Ice Age vision has dropped nicely into place. Both coupon and
earnings certainty will continue to be re-rated to extraordinary extremes until this cycle
bottoms. One key shoe has yet to drop. Global deflation is an imminent threat next year.
stand at multi-decade lows. This slump in government bond yields means that another of the
more extreme parts of our Ice Age vision has dropped nicely into place. Both coupon and
earnings certainty will continue to be re-rated to extraordinary extremes until this cycle
bottoms. One key shoe has yet to drop. Global deflation is an imminent threat next year.
NH:
m sure many of you probably thought I was mad at the start of this tumultuous year
(actually you probably thought that at most times, in most years). But this year I was
probably more vocal than ever before about the impending economic and financial market
Armageddon that investors faced. Ice Age reality is now very much upon us.
(actually you probably thought that at most times, in most years). But this year I was
probably more vocal than ever before about the impending economic and financial market
Armageddon that investors faced. Ice Age reality is now very much upon us.
NH:
A combination of economic free-fall and the Feds suggestion that they are considering
buying Treasuries as part of quantitative easing (QE) have sent government bond prices
soaring. Yields have halved in two months! This should come as no surprise as this was a
key essential part of Helicopter Bens original ground-breaking speech on the subject back
in November 2002 link. Currently worries about excess bond supply and the potential for
substantially higher inflation in the medium term have been brushed aside.
buying Treasuries as part of quantitative easing (QE) have sent government bond prices
soaring. Yields have halved in two months! This should come as no surprise as this was a
key essential part of Helicopter Bens original ground-breaking speech on the subject back
in November 2002 link. Currently worries about excess bond supply and the potential for
substantially higher inflation in the medium term have been brushed aside.
NH:
John Kemp, a Reuters columnist wrote an interesting article yesterday entitled “Fed
unleashes greatest bubble of all”. He stated, Bernanke is making a time-inconsistent
promise to hold interest rates low for an extended period. For if the policy is successful,
investors buying bonds at current levels will incur massive losses link. I have been
debating this very subject with my colleague James Montier recently. After all how much
lower can bond yields go (see chart below)? But for now I retain my bias towards
government bonds. Investors, I believe, underestimate how very close the global economy
is to getting trapped in outright deflation. We expect panic to grip the markets at some point
in the first half of next year, sending both equity prices and bond yields substantially lower.
unleashes greatest bubble of all”. He stated, Bernanke is making a time-inconsistent
promise to hold interest rates low for an extended period. For if the policy is successful,
investors buying bonds at current levels will incur massive losses link. I have been
debating this very subject with my colleague James Montier recently. After all how much
lower can bond yields go (see chart below)? But for now I retain my bias towards
government bonds. Investors, I believe, underestimate how very close the global economy
is to getting trapped in outright deflation. We expect panic to grip the markets at some point
in the first half of next year, sending both equity prices and bond yields substantially lower.
PM:
NH:
Amid the avalanche of bad news, global equity markets have made a brave effort to stabilize
over the past two months. We still feel relatively comfortable that paring back our extreme
underweight equity recommendation on 23 Oct, was the right thing to have done the MSCI
World index is broadly flat since – in recent days the S&P has even managed to clamber above
its 50 day moving average. But obviously the real story in recent weeks has been the collapse
in yields to generational lows in the government bond market. Our Ice Age strategic
preference for government bonds over equities still retains its allure (see chart below).
over the past two months. We still feel relatively comfortable that paring back our extreme
underweight equity recommendation on 23 Oct, was the right thing to have done the MSCI
World index is broadly flat since – in recent days the S&P has even managed to clamber above
its 50 day moving average. But obviously the real story in recent weeks has been the collapse
in yields to generational lows in the government bond market. Our Ice Age strategic
preference for government bonds over equities still retains its allure (see chart below).
NH:
The Q3 US Flow of Funds was published this week by the Fed. We updated the US total
debt/GDP chart (including revisions) and guess what? There has been no progress at all in
the reduction of obscene debt excess that has brought the global economy to its knees
(see chart below). Of course policy is now specifically designed to prevent a normalisation of
this debt/GDP ratio with the federal deficit ballooning to the moon to take up the slack as the
private sector de-leverages. But is this once again just merely postponing the ultimate debt
bust? Could the much pilloried German monetary hawks actually have a point when they
ridicule current hyper-expansionist policy of the UK and by association the US authorities?
debt/GDP chart (including revisions) and guess what? There has been no progress at all in
the reduction of obscene debt excess that has brought the global economy to its knees
(see chart below). Of course policy is now specifically designed to prevent a normalisation of
this debt/GDP ratio with the federal deficit ballooning to the moon to take up the slack as the
private sector de-leverages. But is this once again just merely postponing the ultimate debt
bust? Could the much pilloried German monetary hawks actually have a point when they
ridicule current hyper-expansionist policy of the UK and by association the US authorities?
PM:
And you thought i was mad
PM:
Quite brilliant — and mad
NH:
So much has changed since I did my economics degree in the late 1970s. At that time we had
come to terms with shortcomings of Keynesian pump-priming. Many an exam question used
to contain a key quote from the then UK Prime Minister James Callaghan to a hostile Labour
come to terms with shortcomings of Keynesian pump-priming. Many an exam question used
to contain a key quote from the then UK Prime Minister James Callaghan to a hostile Labour
NH:
Party Conference in 1976. “We used to think that you could spend your way out of a recession
and increase employment by cutting taxes and boosting government spending. I tell you in all
candour that that option no longer exists, and in so far as it ever did exist, it only worked on
each occasion since the war by injecting a bigger dose of inflation into the economy, followed
by a higher level of unemployment as the next step
and increase employment by cutting taxes and boosting government spending. I tell you in all
candour that that option no longer exists, and in so far as it ever did exist, it only worked on
each occasion since the war by injecting a bigger dose of inflation into the economy, followed
by a higher level of unemployment as the next step
PM:
Okay — we should get out of this chat before the market bounces
PM:
Footsie off 127 currently
NH:
and the miners getting smashed now
NH:
Xstrata off almost 14%
NH:
ouch
PM:
Reminder of Xmas ML hours — AV and ML open as usual Monday and Tuesday — but then off until January 5 
PM:
FKA — we havent had time for a competition today
PM:
But lets def have that Monday and Tuesday
PM:
Praxis – Kemp doesnt seem to have a separate blog — got to go to reuters.com and search john kemp
PM:
Right — seeya!
PM:
And thank you !
NH:
cya