Markets live chat transcript for the chat ending at 12:07 on 7 Jul 2009. Participants in this chat were: Paul Murphy, FT (PM) Neil Hume, FT (NH)
PM:
hi there
PM:
Welcome to Markets Live
PM:
FT Alphaville’s daily markets discussion
PM:
Neil is with me.
PM:
We are both aware that if we just witter on about nothing in particular the crowd over on the right will start to believe that nothing much is going on – and start throwing tomatos at us.
PM:
So where to Neil?
NH:
Well, we can look at this guff in the Indie about Sam.
PM:
Sam Jones? 
PM:
The guy who worked here on AV for a while?
NH:
One and the same
NH:
This is the link you need
PM:
WHERE THE REAL POWER LINES IN CREATIVE BRITAIN ?????
PM:
What the hell is this?????
PM:
NH:
It’s a list of the 100 most powerful creative types in Britain – done in conjunction with something called The Hospital Club.
PM:
AND SAM JONES IS IN THERE AT NUMBER 14??????????
PM:
CALL THE PCC!!!!
NH:
Press Complaints Commission
PM:
Emerging in Publishing and Journalism
Sam Jones, writer,The Financial Times
Sam Jones, writer,The Financial Times
PM:
The FT?s hedge fund correspondent. ?Hedge funds are in a state of crisis: they are hugely secretive and facing extremely tough times,? he said when taking up his post. Previously he was a contributor to the Financial Times?s Alphaville news and commentary service.
Commended: Stewart Heritage, editor of hecklerspray.com
Commended: Stewart Heritage, editor of hecklerspray.com
PM:
Is that a quote from Sam?
PM:
?Hedge funds are in a state of crisis: they are hugely secretive and facing extremely tough times,? he said when taking up his post.
NH:
He’s sharp, that Sam Jones.
PM:
?Hedge funds are in a state of crisis: they are hugely secretive and facing extremely tough times,? he said when taking up his post.
NH:
So he’s got on top of his new beat quickly.
PM:
?Hedge funds are in a state of crisis: they are hugely secretive and facing extremely tough times,? he said when taking up his post.
NH:
We’re not jealous.
NH:
We just hope he looks after us on our way down.
PM:
Should I mention here about him doctoring his CV?
PM:
Claiming to write Basic and HTML
NH:
That’s not true, Murphy. That’s a smear you’ve been trying to put round for ages.
NH:
He said he had basic HTML
PM:
You got a copy of his CV, have you?
NH:
Er, no.
PM:
Ah. Okay. Well I hired him…
PM:
I will keep my peace until he reaches the top of that Creative 100 list.
NH:
Strangely, Sam seems to be the only one there that doesn’t have a photo.
NH:
Sure we can sort that for next year…
NH:
Anyway, good to see Sam higher up the rankings than people like Elizabethh Murdoch and Cheryl Cole
NH:
He’s one rank below Will Lewis tho.
PM:
Anyway, I’m bored of Sam. He’s soooooooo 2008.
PM:
(jk2000 — so true)
NH:
Hecklerspray looks good though
NH:
here’s taster
NH:
Michael Jackson’s memorial service is, fittingly, expected to be a show to remember for those fortunate enough to gain entrance.
Yes, today is the day. Mr Michael Jackson – pop legend and child nightmare – is due to give his final performance. As befitting the clown prince of showbiz, it’s going to be a monstrous affair, filled with music royalty, heads of the entertainment industry and… a kid from Wales who came seventh in a talent competition.
PM:
Oh brilliant — and Sam beat that?
NH:
well, there is a twist
NH:
Really? Wow.
See you after the jump, when we… honestly, that smug little tosswad with the hair gel?
PM:
Charming
PM:
lets move
11:10AM
PM:
What’s going on in the real world Neil??
NH:
Well there’s Jeremy Warner’s first column at the Telegraph.
NH:
Everyone agrees that we must prevent our banks from failing ever again. But, says distinguished City commentator Jeremy Warner, who joins the Telegraph today, a mania for regulation is not the answer
PM:
Distinguished commentator???
NH:
Is he not distinguished?
PM:
Well, he was at the Indie for yonks – and he is very good.
PM:
Yes, but he’s also a fraudster.
PM:
A click-fraudster.
PM:
We caught him a couple of years back when we were running Click or Clunk.
NH:
We should bring that back – you had to vote on City Editors’ columns, which you liked.
NH:
People got evicted from the Click or Clunk Post.
NH:
Brummer and Hilton to early exits.
NH:
Warner had a “fan” – or someone who kept clicking his column…
NH:
But Nils Pratley of the Guardian won eventually – by a whisker.
PM:
Anyway, here’s Jeremy’s new column at the Telegraph.
NH:
What’s it about?
PM:
You didn’t expect me to read it, did you?
PM:
Despite its now manifest failings, the FSA is for Labour a sacred cow to be defended to the last. Mr Brown is still proud of the organisation he created; he regards it as a genuine policy achievement and is determined it should remain as a lasting legacy.
The upshot is that for the time being, the “tripartite” system, with responsibility for financial stability lying somewhere between the Bank of England, the FSA and the Treasury, but with nobody quite sure where the ultimate power resides, will remain.
The upshot is that for the time being, the “tripartite” system, with responsibility for financial stability lying somewhere between the Bank of England, the FSA and the Treasury, but with nobody quite sure where the ultimate power resides, will remain.
NH:
Well, that’s true enough.
NH:
Regulatory fudge.
NH:
Peston was saying yesterday we are going to get a “committee”
PM:
That’ll solve things. Tripartite regulation by committee…
PM:
Bring on the election, eh.
11:13AM
PM:
Told you the crowd would start baying for market news
NH:
they probably think we are avoiding the fact that we are being squeezed this morning?
PM:
Not a bit of it.
PM:
PM:
The dead cat has been so tentative – only in the last hour or so have we seen the Footsie move
NH:
currently up 45 points at 4,240
NH:
mind you
NH:
volume is light
NH:
not as light as yesterday
NH:
but pretty thin
NH:
I still think we will see 4,000 before the summer is out
PM:
Yup
NH:
anyway
NH:
the miners which led us down yesterday
NH:
are leading us up today
NH:
no real reason
PM:
china fixed now is it?
NH:
dunno
NH:
biggish nove though
Kazakhmys (KAZ:LSE): Last: 625.00, up 33.5 (+5.66%), High: 632.50, Low: 594.50, Volume: 773.05k
Antofagasta (ANTO:LSE): Last: 592.00, up 25.5 (+4.50%), High: 592.50, Low: 568.50, Volume: 643.02k
Vedanta Resources (VED:LSE): Last: 1,356, up 56 (+4.31%), High: 1,377, Low: 1,313, Volume: 968.22k
Rio Tinto (RIO:LSE): Last: 1,959, up 74 (+3.93%), High: 1,978, Low: 1,886, Volume: 3.04m
Lonmin (LMI:LSE): Last: 1,103, up 43 (+4.06%), High: 1,121, Low: 1,060, Volume: 544.15k
Xstrata (XTA:LSE): Last: 627.90, up 21.9 (+3.61%), High: 635.00, Low: 605.80, Volume: 5.11m
NH:
actually
NH:
a bit of RAW round in Anglo’s
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:
apparently
NH:
Vale and Xstrata might join forces and bid
PM:
Really ? Cool idea — but I’m guessing it is still very much at the “broker idea” level
NH:
probably, but the rumour has undoubtedly been fuelled by this
NH:
Vale S.A. (NYSE: VALE, VALE.P) hereby announces that it plans to
offer in the global capital markets two series of mandatorily convertible notes
due 2012 (the Series VALE-2012 Notes and the Series VALE.P-2012 Notes) through
its wholly-owned subsidiary Vale Capital II. At their maturity and upon
certain events earlier, the Series VALE-2012 Notes will be mandatorily converted
to American Depositary Shares (ADSs), each representing one common share of
Vale, and the Series VALE.P-2012 Notes will be mandatorily converted to ADSs,
Each representing one preferred class A share of Vale. Together, the ADSs
Will represent up to an aggregate of 18,415,859 common shares and 47,284,800
preferred class A shares of Vale, all of which Vale currently holds in
treasury.
offer in the global capital markets two series of mandatorily convertible notes
due 2012 (the Series VALE-2012 Notes and the Series VALE.P-2012 Notes) through
its wholly-owned subsidiary Vale Capital II. At their maturity and upon
certain events earlier, the Series VALE-2012 Notes will be mandatorily converted
to American Depositary Shares (ADSs), each representing one common share of
Vale, and the Series VALE.P-2012 Notes will be mandatorily converted to ADSs,
Each representing one preferred class A share of Vale. Together, the ADSs
Will represent up to an aggregate of 18,415,859 common shares and 47,284,800
preferred class A shares of Vale, all of which Vale currently holds in
treasury.
PM:
Ah yes,
NH:
Now, Vale already has a huge pile of cash
NH:
around $12bn
NH:
not sure why it needs more
NH:
unless of course it is considering an acquisition
PM:
Peole are jumping on all these cash raisings
PM:
Of course they can be jsut to reorganise debt etc
PM:
But given the M&A buzz in this sector, it’s understandable when people get creative with the maths
NH:
true
NH:
not sure if Vale and Xstrata could really join forces
NH:
anyway
NH:
it is one bit of RAW
NH:
there are some others
NH:
but first we should look at the UK housebuilders
NH:
and further signs of stablisation
11:18AM
PM:
housebuilders it is
NH:
yep
NH:
it’s dinner party live time
PM:
So we’ve talked about the media
PM:
And now we’re going to talk about house prices
NH:
well
NH:
sort of
NH:
results out from Persimmon this morning
PM:
And?
PM:
Share price is up…
NH:
it is
NH:
15.75p better at 379p
NH:
dragged up a few other names in the sector
NH:
such
NH:
as
Barratt Developments (BDEV:LSE): Last: 156.50, up 7.25 (+4.86%), High: 158.00, Low: 148.50, Volume: 1.81m
Bellway (BWY:LSE): Last: 652.00, up 25 (+3.99%), High: 655.00, Low: 631.00, Volume: 398.27k
PM:
so house price slump over
NH:
not quite, the interims show that’s things are getting worse and Persimmon is saying there won’t be any more asset write-downs without a double-dip
PM:
NH:
looks like prices were down 4% in first half of the year, but the rate of decline has eased or even started to stablise in some parts of the country
NH:
the biggest problem, according to Persimmon are the weak vaulatuions from mortgage lenders
NH:
which are preventing people from getting mortgages
NH:
and one more point, forward sales
PM:
Oh yeah
NH:
sales of £700m for H2 2009 vs £650m H2 2008
PM:
hmmm, that all looks pretty positive
PM:
I still the think the peak trough fall in house prices will be over 30%
PM:
And what are we now, something liek 18%
PM:
No way is this done. 18% is not sufficient to re-set the market
PM:
Are we still on six times average earanings?
PM:
hello?
PM:
there has got to be a good chance of a double dip
PM:
but I guess we will just have to wait for that
NH:
we will
PM:
What about the analysts??
NH:
some think we are witnessing the early stage of a UK recovery
NH:
well, that’s what Cazenove thinks
NH:
Persimmon – [PSN.L, PSN LN], 363p, Stock OUTPERFORM, Sector Neutral – Positive H12009 Trading Statement
Persimmon issued robust trading statement this morning. The Group opened 42 new sites during H1 2009 and expects to open around 50 more in the second half, house prices are stabilising, the Group is looking at a small number of land opportunities and no further land write downs are anticipated . In our view the commentary adds further to weight to our belief that we are at the early stages of a UK housing recovery.
Persimmon issued robust trading statement this morning. The Group opened 42 new sites during H1 2009 and expects to open around 50 more in the second half, house prices are stabilising, the Group is looking at a small number of land opportunities and no further land write downs are anticipated . In our view the commentary adds further to weight to our belief that we are at the early stages of a UK housing recovery.
We believe that all eyes will now be focusing on the state of the autumn selling season, whilst it is too early to call the forward orderbook offers encouraging signs being 8% ahead of 30 June 2008 and 53% ahead 1 Jan 2009.
NH:
At 363p The Group trades on a current price to book of 0.84x (1.07x if we write land
down to our trough valuation of £28,000 per plot). At these levels, in our view, the Group offers good value, we retain our Outperform recommendation and expect the sector to react positively to today’s statement.
down to our trough valuation of £28,000 per plot). At these levels, in our view, the Group offers good value, we retain our Outperform recommendation and expect the sector to react positively to today’s statement.
NH:
Highlights
Legal completions 4,006
Legal completions 4,006
Revenue c.£625m (£998m)
Net debt c.£495m (£906m), Net debt at year end anticipated to be around £450m.
Forward sales revenue £700m compared to £458m on 1 January 2009 and c.£650m at the same time last year.
House prices fallen by c.4% during H1 2009, although the rate of decline is slowing and there has been some stability in some locations.
Cancellations are at a historic low of c.16%
NH:
During H1 the Group opened 45 new sites and it plans to open a further 50 sites during H2 2009, currently the Group has 390 sites.
Landbank 64,500 plots (76,159 – June 2008)
Landbank 64,500 plots (76,159 – June 2008)
No need to buy land, but have identified a ‘small number of opportunities’ that have good margin potential.
No further land writedowns required at this stage.
Interim results will be released on Tuesday 25th August
NH:
here’s Collins Stewart
NH:
Persimmon has published a very upbeat trading statement. Debt on June 30th stands at £495m, very close to the company FY target of £450m which is now likely to be beaten. House prices continue to weaken with an underlying fall of 4% through H1, however the rate of decline is getting smaller and prices are stabilising in some locations.
Crucially, the group expects to make no further land writedowns at this point. To date Persimmon has written down £710m from its landbank (circa 18% of historic values. This figure incorporated further price declines through 2009. Our target price calculation assumes a further £200m land writedown at Persimmon.
Crucially, the group expects to make no further land writedowns at this point. To date Persimmon has written down £710m from its landbank (circa 18% of historic values. This figure incorporated further price declines through 2009. Our target price calculation assumes a further £200m land writedown at Persimmon.
NH:
Outlook – more signs of stability
The group is encouraged by current sales rates although it notes that mortgage availability needs to improve further and employment prospects stabilise. This is largely in line with comments made by peers. Forward sales into H209 are up 53%.
The group is encouraged by current sales rates although it notes that mortgage availability needs to improve further and employment prospects stabilise. This is largely in line with comments made by peers. Forward sales into H209 are up 53%.
NH:
Valuation – upside if there are no more writedowns
This trading update is positive for the whole housing sector, providing further confirmation of a level of stability in the underlying market. We remain buyers of TaylorWimpey and Bovis, where we assume further land writedowns of £900m at TaylorWimpey and £60m at Bovis. These assumptions of further writedowns have the scope for reduction if the housing market continues its current trends of stability. The sector trades on a P/BV of 0.7x, with both Bovis and Persimmon trading on 0.7x with TaylorWimpey on 0.4x.
This trading update is positive for the whole housing sector, providing further confirmation of a level of stability in the underlying market. We remain buyers of TaylorWimpey and Bovis, where we assume further land writedowns of £900m at TaylorWimpey and £60m at Bovis. These assumptions of further writedowns have the scope for reduction if the housing market continues its current trends of stability. The sector trades on a P/BV of 0.7x, with both Bovis and Persimmon trading on 0.7x with TaylorWimpey on 0.4x.
NH:
and finally Arbuthnot
NH:
Valuation and Recommendation
Our trough NAV of 364p incorporates a further £260m land provision equating to a 15% write down to both land and WIP which assuming a continuation of reasonably stable trading conditions is beginning to look overly cautious. Furthermore impairments taken to date allow for a further 10% of selling price declines (to incorporate a 27% peak to trough fall) of which the group estimates it has experienced c4% in the six month period. The group does not expect any requirement for further provisions.
Our trough NAV of 364p incorporates a further £260m land provision equating to a 15% write down to both land and WIP which assuming a continuation of reasonably stable trading conditions is beginning to look overly cautious. Furthermore impairments taken to date allow for a further 10% of selling price declines (to incorporate a 27% peak to trough fall) of which the group estimates it has experienced c4% in the six month period. The group does not expect any requirement for further provisions.
NH:
Not only does the group have a strong, experienced management team, an essential attribute in the current market, but it has an attractive product mix with just 2% of production being inner city apartments and 30% apartments overall (versus an industry fig of c50%). For these reasons we are comfortable for Persimmon, in common with Bellway, to trade at a 10% premium to its trough NAV and raise our target price to 400p. We reiterate our Buy recommendation.
PM:
jeepers
PM:
they are all very positive
PM:
i must sound like a crazy old bear
PM:
But i also suspect that some of those analysts have never seen a housing crash before
NH:
well
NH:
that said Persimmon is one of the quality plays in the sector
11:26AM
PM:
where now?
NH:
can we stick with construction
NH:
been looking at CRH
NH:
they issued what looked to be a shocking trading update this morning
NH:
I thought the stock was going to take a real pasting
NH:
and take Wolseley with it
PM:
er, you were wrong
PM:
Price is actually up a penny at 16.2p
NH:
hmmm
NH:
must have missed something in the statement, because on first glance
NH:
well, it looked like a profits warning
NH:
May and June have been weaker than expected, with CRH forecasting H109 operating profit at one-third of last year’s.
NH:
in fact H109 PBT will fall more than 80% to E0.1bn in H109 compared to E0.6bn in H108.
NH:
profits in Europe down 60% and in the US off 90% because of cancellations in commercial projects
NH:
downgrades of 15-20% coming through
PM:
so why aren’t they down. Bad news already in the price??
NH:
could be
NH:
although it might also be this
NH:
the company expects the decline in profits to slow in the second half of the year
NH:
but then again it couldn’t much worse
PM:
So we have reached the bottom, buy
NH:
yep, dash for trash revisited
NH:
now CRH is a big builders’ merchant
NH:
Paul just pulling up the chart
NH:
got up to EUR20
NH:
back at the end of April
NH:
even so
NH:
I suppose there is a big cost cutting plan announced this morning
NH:
anyway
NH:
for those looking to understand the bull case
NH:
have a look at this note from Merrill
NH:
CRH H1 Trading Update out this morning.
Main Points as follows:
Overall- Remains tough everywhere. Guiding to H1 PBT of c€100m vs comp of
€600m- currency impact only about €20m. A restructuring cost of €75m included
in the PBT indications.
Main Points as follows:
Overall- Remains tough everywhere. Guiding to H1 PBT of c€100m vs comp of
€600m- currency impact only about €20m. A restructuring cost of €75m included
in the PBT indications.
NH:
There is always a H2 skew to the business, (40% vs 60%).
Basically while they are seeing rate of slowing down improve, this is taking longer
than expected and they are pointing to H2 still being difficult. But H2 will benefit
from costs savings, US stimulus pakage and potential deal flow.
Americas- vols down by 25-30% in aggregates/asphalt, but pricing still good- up
high single digit. Distribution- weak in Q1, stabilising in Q2.
Overall H1 sales expected to be down by 20%, underlying EBIT down by c70%.
Europe- weak first 4 months. Materials mixed- Poland and Switzerland good,
Ireland/Portugal/Finalnd tough.
Overall Europe in H1, sales expected to be down by high-teens, underlying EBIT
c50% down y-o-y.
Overall cash outflow flat y-o-y at about €600m.
Basically while they are seeing rate of slowing down improve, this is taking longer
than expected and they are pointing to H2 still being difficult. But H2 will benefit
from costs savings, US stimulus pakage and potential deal flow.
Americas- vols down by 25-30% in aggregates/asphalt, but pricing still good- up
high single digit. Distribution- weak in Q1, stabilising in Q2.
Overall H1 sales expected to be down by 20%, underlying EBIT down by c70%.
Europe- weak first 4 months. Materials mixed- Poland and Switzerland good,
Ireland/Portugal/Finalnd tough.
Overall Europe in H1, sales expected to be down by high-teens, underlying EBIT
c50% down y-o-y.
Overall cash outflow flat y-o-y at about €600m.
NH:
and this is the bear case
NH:
from Collins Stewart
NH:
CRH expects its H109 PBT will fall more than 80% to E0.1bn in H109 compared to E0.6bn in H108. EBIT will drop by 2/3rds. Geographically European EBIT is expected to be 60% down and the US 90% lower. The shortfall in Q2 was smaller than in Q1, however trading in May and June was weaker than expected.
Significant downgrades to come
Second-half profits are also expected to decline despite easier comps, lower energy costs and more infrastructure spend. Even flat H2 profits would lead us to downgrade our PBT forecasts by 15%. The group is accelerating cost savings and has a small war chest courtesy of its rights issue, however we believe it is unlikely to invest aggressively as asking prices remain unattractive. CRH has spent E0.3bn in H109, most of which relates to a Chinese deal agreed over a year previously with only E26m of further transactions.
NH:
Sector read-through
We continue to expect a poor reporting period in Q209 for the building materials sector, with St Gobain and Wienerberger likely to suffer severely due to their exposures across Europe and the US. We expect Lafarge will prove more resilient, due to growth in China/Middle East. We expect Lafarge Q2 EBIT to be circa 30% lower than last year.
We continue to expect a poor reporting period in Q209 for the building materials sector, with St Gobain and Wienerberger likely to suffer severely due to their exposures across Europe and the US. We expect Lafarge will prove more resilient, due to growth in China/Middle East. We expect Lafarge Q2 EBIT to be circa 30% lower than last year.
Valuation
Despite some broker downgrades ahead of the trading update, this is still a substantial negative surprise and we expect the shares to fall sharply. CRH is a very highly regarded company, and the market tends to take downgrades from the group in a poor light. CRH trades on 6.9x EV/EBITDA pre-downgrades, in line with the sector average of 6.7x. This is in line with Lafarge (6.9x), which in our view offers much better prospects. Our E16 TP is DCF-derived with a Quest default per share of E18.
PM:
thanks for all that
11:31AM
NH:
right
NH:
competition time
NH:
and after the success of the Sam Jones memorial comp
NH:
we are launching the Ashes comp
NH:
and the challenge is
NH:
to predict how many runs England score over the series
NH:
Paul is just trying to get an indicative price
PM:
Very difficult call!
NH:
but we must stress
NH:
the people read the small print
NH:
we have the right to retroactively change the rules
NH:
if we don’t like the outcome
NH:
in theory
NH:
England could bat ten times
PM:
cant see a price for total number of runs
PM:
Taht’s looking at betfair
PM:
Neil is having a look elsewhere
PM:
AV market is around 2600 so far
PM:
i should quickly print the rules, to avoid any misunderstandings
PM:
1. No FT employees or any relative etc
PM:
2. One go only
PM:
3. Tracy is ref for the competition
PM:
4. rules can be re-written to Taxloss’s detriment
NH:
yes, it’s very important to remember that
PM:
btw — Taxloss — can you sent Tracy your postal address
PM:
For the fabulous prize etc
PM:
What have we got to give away?
NH:
how abou the James Montier and Albert Edwards collection
NH:
Countdown to Crisis
NH:
all their essays from the past year
PM:
it’s a collectors piece
PM:
I want to keep it
PM:
SoS — we might be able to deliver that
PM:
Signed copy of Gillian Tett’s new book
NH:
yep
NH:
should be able to do that
NH:
right
NH:
comp close at 10.45 tomorrow morning
PM:
okay
PM:
What are you gonig for Neil?
PM:
This is a bet on the weather, actually
NH:
we have had a bet on that
NH:
already
PM:
(SoS) — dont push it)
NH:
I seem to remember Cityboy making a stupid price for rain days this summer
NH:
I reckon it will be dry and hot
NH:
even in Cardiff
PM:
(Ditto Beefer)
PM:
(Ditto, ditto Monkey)
PM:
(Diesegeld — actually, that’s probably deliverable)
PM:
Tuppence — cheat away if you wish. You might get found out and stripped off prize tho
PM:
Tracy’s call
PM:
Anyway, back to the markets…
11:42AM
NH:
bit of breaking news coming through
NH:
U.S. commodities regulators, in an effort to crack down on excessive speculation, plan to propose sweeping trading limits on oil, natural gas and possibly other commodities.
U.S. Commodity Futures Trading Commission Chairman Gary Gensler said Tuesday the agency will hold hearings this summer to consider imposing position limits for “all commodities of finite supply.” The agency will also review whether swap dealers, index traders and exchange-traded fund managers should be allowed to get around those limits through special hedge exemptions.
NH:
that was from the WSJ
PM:
Seen the journal now running that
PM:
But to be fair, this story was first in the washington post
PM:
h/t John Kemp
PM:
CFTC Floats Rules Aimed at Speculation
Wall Street Gears Up to Fight Curbs
By Zachary A. Goldfarb
Washington Post Staff Writer
Tuesday, July 7, 2009
The Commodity Futures Trading Commission will consider new measures to curb speculation in the markets for energy and other commodities, the agency is set to announce today.
The move aims to reduce the volatility of prices but faces resistance from top Wall Street firms, which fear the efforts could cut into profits. Regulators and lawmakers increasingly worry that these firms have used their size and power to inflate the prices of commodities, booking profits in the process.
Concern over such deal-making reached a fever pitch last summer, when oil prices were sky high and people were feeling pain at the gas pump. CFTC data showed last year that a significant amount of trading in oil was concentrated in the hands of just a few speculators. These worries have waned since then, as gas prices have moderated from last year’s highs, though a recent run-up in fuel prices may prompt new questions.
But a report last month by a Senate investigative committee warned that firms manipulated the price of wheat, causing farmers and consumers to pay much higher prices.
The initiatives are among the most significant steps taken by CFTC Chairman Gary Gensler since he started in May. The CFTC often operates in the arcane world of agricultural policy and finance, but the spillover effects of its policies can affect how much consumers pay for fuel and food.
Gensler and the CFTC are also key players in the Obama administration’s plan to regulate derivatives, a multitrillion-dollar market that is exempt from government oversight. The CFTC, along with the Securities and Exchange Commission, would regulate the derivatives market under the Obama plan. Derivatives are financial products that derive their value from other assets.
Wall Street Gears Up to Fight Curbs
By Zachary A. Goldfarb
Washington Post Staff Writer
Tuesday, July 7, 2009
The Commodity Futures Trading Commission will consider new measures to curb speculation in the markets for energy and other commodities, the agency is set to announce today.
The move aims to reduce the volatility of prices but faces resistance from top Wall Street firms, which fear the efforts could cut into profits. Regulators and lawmakers increasingly worry that these firms have used their size and power to inflate the prices of commodities, booking profits in the process.
Concern over such deal-making reached a fever pitch last summer, when oil prices were sky high and people were feeling pain at the gas pump. CFTC data showed last year that a significant amount of trading in oil was concentrated in the hands of just a few speculators. These worries have waned since then, as gas prices have moderated from last year’s highs, though a recent run-up in fuel prices may prompt new questions.
But a report last month by a Senate investigative committee warned that firms manipulated the price of wheat, causing farmers and consumers to pay much higher prices.
The initiatives are among the most significant steps taken by CFTC Chairman Gary Gensler since he started in May. The CFTC often operates in the arcane world of agricultural policy and finance, but the spillover effects of its policies can affect how much consumers pay for fuel and food.
Gensler and the CFTC are also key players in the Obama administration’s plan to regulate derivatives, a multitrillion-dollar market that is exempt from government oversight. The CFTC, along with the Securities and Exchange Commission, would regulate the derivatives market under the Obama plan. Derivatives are financial products that derive their value from other assets.
11:43AM
NH:
right some more RAW
NH:
reheated this
NH:
could be dangerous to consume
NH:
but anyway
NH:
here we go
NH:
more buying of Tandberg in Norway
PM:
Tandberg??
NH:
er, one the world’s leading teleconferencing company
PM:
course it is
NH:
bid rumours have been swirling around for a while
NH:
Cisco was one name
NH:
another was Silver Lake Partners
NH:
actually they were set to buy the company last year
NH:
before the world imploded post Lehman
NH:
there was talk a few weeks back that they were, er back
NH:
but then some people were telling me that they had walked again
NH:
anyway, a buzz around in those
PM:
thanks for that
NH:
and there’s this
NH:
from a Spanish website
NH:
Rumuor in website Hispanidad.com that Bank of Spain might force Caja Madrid to sell some industrial holdings which are:Mapfre —- 15%Indra —- 15%Iberia —- 23%Bankinter – 5%Metrovacesa 9%BME —- 1%GAM —- 5%NH Hotels – 5%
NH:
also
NH:
it looks as if a bond auction has not gone hugely well this morning
NH:
in the UK
NH:
DMO SELL £4B IN 3.75% 2019 GILTS, AVG YIELD %, BID-TO-COVER 1.96 X V 2.51 PRIOR AND AVG OF 2.28 IN PRIOR 3 AUCTIONS
NH:
Yield tail bps 1.0bps v 0.5bps prior and avg of 1.3pbs in previous 3 auctions
11:46AM
PM:
Seen this strategy stuff from Credit Suisse
PM:
Andrew Garthwaite
NH:
oh, yes
NH:
he’s been on a roadshow
NH:
seeing investors on both sides of the pond
PM:
Crowd sourcing
PM:
Actually, i was thinking…
PM:
Should we have a Crowd Source Friday feature
NH:
how would that work?
PM:
One day a week people could post up all the stuff they want us to discuss in advance
PM:
?
NH:
sounds a bit dangerous
NH:
it might all be about Carpetright
PM:
that’s the risk we must take
PM:
If you think it is a good idea
PM:
let’s ask the crowd..
PM:
over on the right…
PM:
Would you like a regular day — say Friday — when you dictate what we talk about ?
PM:
In a more formal way?
PM:
Or not bothered
PM:
??
11:49AM
PM:
Anyway, back to Garthwaite
NH:
yeah, what’s the feedback
NH:
what’s consensus?
PM:
What are you saying?
Getting close to completing our marketing trip on both sides of the pond, we
thought it worthwhile reflecting on clients’ views. These are the general trends:
Getting close to completing our marketing trip on both sides of the pond, we
thought it worthwhile reflecting on clients’ views. These are the general trends:
PM:
(1) GDP: most clients are looking for a positive surprise on the back of inventory
rebuild, and a number expect a quicker-than-normal bounce-back in
employment: this is the first recession in which US employment has fallen a lot
more than US GDP. We heard quite a lot of whispers of 3% to 5% Q3 US GDP
growth (cf consensus Q3 GDP of just 0.5%). There is confusion about the longterm
outlook: most investors we spoke to felt trend growth should be lower, but
were not sure by how much (the OECD claim by nearly 0.4%). Most feel policy
will cause the next leg down!
rebuild, and a number expect a quicker-than-normal bounce-back in
employment: this is the first recession in which US employment has fallen a lot
more than US GDP. We heard quite a lot of whispers of 3% to 5% Q3 US GDP
growth (cf consensus Q3 GDP of just 0.5%). There is confusion about the longterm
outlook: most investors we spoke to felt trend growth should be lower, but
were not sure by how much (the OECD claim by nearly 0.4%). Most feel policy
will cause the next leg down!
(2) Markets: The ‘sell on rally’ mentality of two
months ago has turned into a ‘buy on dips’ one. Clients are focussing on
positive earnings revisions (for the first time since September 2007), at a time
when margins appear to have troughed at much higher levels than during
previous recessions. The key debate is therefore: could margins stay above
their long-run norms? Institutions are still clearly short of equities (relative to
their desired targets).
PM:
(3) Everyone is a dollar bear…owing to QE! – and that in
spite of the fact that the UK, Switzerland and Sweden are doing more QE than
the US.
spite of the fact that the UK, Switzerland and Sweden are doing more QE than
the US.
(4) Inflation, inflation, inflation… Clients almost unanimously believe
that they have to be positioned for inflation (by buying resources, debtors). But
can we really ignore the fact that US and UK wage growth has just fallen to
post-war lows?
PM:
(5) Regions: being overweight Japan is becoming consensus. A
number of clients think that a bubble could form in NJA (Hong Kong base
money is up 116% yoy). There was little talk about Europe. (6) Commodities:
clients are bullish – on the back of a weaker dollar, rising inflation concerns and
(now consensus) 8% GDP growth in China. Yet we believe commodities have
moved too early in the cycle: nearly all primary commodities are now above
their break-even levels for the highest-cost producer (with the exceptions of
steel). Some clients, like us, are particularly worried about the valuation of
mining. We met very few investors who were bullish on steel.
number of clients think that a bubble could form in NJA (Hong Kong base
money is up 116% yoy). There was little talk about Europe. (6) Commodities:
clients are bullish – on the back of a weaker dollar, rising inflation concerns and
(now consensus) 8% GDP growth in China. Yet we believe commodities have
moved too early in the cycle: nearly all primary commodities are now above
their break-even levels for the highest-cost producer (with the exceptions of
steel). Some clients, like us, are particularly worried about the valuation of
mining. We met very few investors who were bullish on steel.
(7) Defensives:
most believe that market leadership has to broaden and many were looking at
telecoms. A lot of the hedge funds seem to believe that US healthcare reforms
will disappoint and are re-examining big cap drugs. Some investors are reexamining
consumer staples with high GEM exposure (which have hardly rallied
in spite of the collapse in GEM CDS spreads).
PM:
(8) Tech: there was little pushback,
which suggests that clients are not uncomfortable with our overweight of
tech, in spite of the fact that it now accounts for 16% of market cap. A number of
clients believe that corporate spend could bounce back earlier we expect
(certainly, there is record FCF, very low leverage and record low investment
share of GDP) and tech is a way of playing this.
which suggests that clients are not uncomfortable with our overweight of
tech, in spite of the fact that it now accounts for 16% of market cap. A number of
clients believe that corporate spend could bounce back earlier we expect
(certainly, there is record FCF, very low leverage and record low investment
share of GDP) and tech is a way of playing this.
(9) Banks: there were almost
no questions (!). Most investors seem to believe that margins will remain wide
but the investors were focussing too little on funding issues and liquidity ratios.
Generally, investors are bullish on investment banks, but find life companies too
opaque to handle.
PM:
that’s it
NH:
interesting that
NH:
gives a really good idea where consensus
PM:
(thank you taxloss)
NH:
and no real surprises
NH:
dollar bears
NH:
like defensives
NH:
worried about inflation
NH:
might be worth putting the full piece up in the LR
PM:
17 pages — we can do that later
NH:
OK
NH:
right
11:52AM
NH:
time for a bit of small cap corner
NH:
now we were going to look at JJB
NH:
but we are still deciding what to do
NH:
with some of the stuff we have heard
PM:
Hmmmmmmmmmmmmmmmm
PM:
Very odd affair
NH:
it is
NH:
but one thing is clear
NH:
JJB are desperate to keep hold of Sir David Jones
NH:
totally desperate
NH:
difficult to see what he would need to go
NH:
to be pushed out
NH:
and that’s because they need to raise at least £50m
NH:
and soon
NH:
have a look at this note
NH:
from Singer Capital Markets
NH:
Separately, we conducted a store visit to JJB yesterday to assess progress in its Summer Sale. Our visit to Staples Corner was most surprising due to the lack of stock on promotion given that they only started the Sale 3 weeks ago. We estimate that less than half the range was promoted (50% off) and that even the stock on Sale was limited in quantity, probably reflecting successful clearance in the preceding 10 days. In contrast to nearby competitors, this store was extremely quiet. In the absence of there being another wave of aged stock from the centre, JJB could come off its sale within the next fortnight. This creates a new problem, as JJB will need to put together a new in-fill package between now and the Autumn, when the first shipment of new ranges is scheduled to arrive. This will require the support of the branded suppliers, and will probably not be part of the new targeted proposition. Consequently, we expect the sales line to remain under pressure in the short term, albeit gross margins should bounce back from currently depressed levels.
PM:
Monkey — point here is that there are two competing sides and some of the information might be…er….confidential…
PM:
We also have to try and be fair
PM:
if not balanced 
PM:
Try….
PM:
But Neil — the key pint that you highlighted earlier was…
PM:
Why go to Ashley in 2007 — at a time when credit was more widely available than at any other time in world history??????
NH:
well, that has not been answered
NH:
just bizzare
NH:
and then Jones did not disclose the loan
NH:
until some time early this year
NH:
given that he was on the board before
NH:
and Ashley was for a time the biggest shareholder in JJB
NH:
you might have thought to disclose it
PM:
Apparently disclosed to the board in Jan, when he mvoed up from non exec to the chairmanship
NH:
it still should have been disclosed
NH:
after the Ross saga
NH:
no excuses
PM:
The Times have been right to bang on about this
NH:
clearly something shareholders should have been informed of
PM:
But we also have to question the motives of Ashley — if he happens to be the source…
NH:
he’s obviously has an interestin screwing the rights issues
PM:
Indeed
PM:
Daddy — a good question that should remain rhetorical…
PM:
Anyway, we should keep on this
NH:
yep
PM:
Be interesting to know what JJB shareholders tell the board
PM:
I hear meetings planned for this week have been “delayed…”
12:00PM
PM:
Now, before we wind up, Shrewdette as ask whether we wold like some horses tips
PM:
Answer from the crowd on the right: yes, please
PM:
And don’t blame Shrewdette if you loose your money
PM:
Shrewdette — maybe you should offer your gmail address?
12:01PM
NH:
beefer
NH:
could u get in touch pls
NH:
neil.hume@ft.com
NH:
concerning the insurance stuff
NH:
Ferret
NH:
we never disclose our sources
NH:
we get stuff from all over the place
PM:
NH:
we never divulge
NH:
sorry
12:03PM
PM:
Right — that is another session done
PM:
Thank you for joining — and thanks for all your comments
PM:
and entries to the Great AV Ashes Comp
PM:
Ive now got to go and see whether Gillian will give us a copy of her book — signed
PM:
if not, I’ll get someone famous, like Sam, to sign it
NH:
right
NH:
until tomorrow
NH:
actually
NH:
I wonder if traffic will suffer tomorrow morning?
NH:
we should actually delay the start of ML till 11.15am
NH:
so we can watch the first few overs
NH:
in fact
NH:
regardless
NH:
I am going to watch the first few overs
PM:
taxloss — we want photos
NH:
11.15am sharp tomorrow
NH:
that’s agreed
PM:
Sure Neil — late start tomorrow then — 11.15
NH:
not 11.03am
NH:
but 11.15am
NH:
Ashes special on ML
NH:
until tomorrow
NH:
at 11.15am
NH:
cya
PM:
seeya