FT Alphaville » US Markets Live transcript 13 May 2011

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US Markets Live transcript 13 May 2011

Posted by Cardiff Garcia on May 13 15:01.

Markets Live chat transcript for the chat ending at 15:18 on 13 May 2011. Participants in this chat were: Cardiff Garcia John McDermott Joseph Cotterill, FT Izabella Kaminska

Gooooood morning

Howdy

Greetings Mextor, gonna get started in a second

Then you’re have our undivided attention, but hopefully some of your pals will come out

We’ve got some breaking news from the Umich survey

Friday, May 13, 2011 9:55:00 AM RTRS – THOMSON REUTERS/U.MICH SURVEY SHOWS KILLING OF BIN LADEN HAD NO IMPACT ON CONSUMERS’ EXPECTATIONS FOR ECONOMY

When did that happen?

What else did we miss?

Damn, high expectations if you ask me

And how come a royal wedding makes people happy

But not the killing of OBL

Just one of many things I don’t understand about your country

Nor I

But anyways, where should we begin?

I know

Lots happening this week

AND WHERE IS THE ROTR?

okay then, John, big deal rumored this morning, right?

Well, bit of a repeat, but yes

Breaking news this morning from the NY Post

And it’s not that the Boston Red Sox suck

Or that there’s another animal loose from the Bronx Zoo

we were scooped by the Murdochians

Mextor, it’s quite possible

Well, we’re a little short staffed at the minute

or just our bad luck: Friday the 13th and all

Anyway, NY Post

Schneider Electric is speaking to private-equity firms about partnering on a $30 billion-plus bid for Tyco International, The Post has learned.
The talks are still at a relatively early stage, and France-based Schneider has not yet chosen the firms with which it would partner and, if they reached a deal with Tyco, split the conglomerate’s assets, two sources close to the situation said.

30bn, wowza, any price action

Cue Tyco on fire, etc, etc, etc,

(Um, thanks yankee)

looks like it’s up just above 3%, and moving fast

but, hold on

haven’t we heard this before

sounds vaguely familiar

and $30bn sounds a little crazy

let’s take a quick look at some numbers

$30bn would be a 29 per cent premium on current market cap of $23.2bn

true, though M&A is coming back with a quickness. yes, lets

Diluted EPS Excluding Extraordinary Items 5 year Growth Rate 15.38%

Return On Equity 9.94%

Operating Margin 8.88%

29% premium, seems a bit pricey

And besides, the French have said they have no intention of making any purchases…

A spokesman for the French company said no deal was in the works.

“There is no plan of large-sized acquisitions now and in the forseeable future.”

The latter quote was from its earnings call last month, though

wonder if they’re pulling a Juncker and denying until it happens

Our industry folks think it’s a way off

(more on that later, btw)

So therefore it could happen in the next hour

We’ll keep you posted

Let’s move on

And maybe double the ROTR count

Gold!

indeed, lots to talk about, though nobody to talk about it with!

Silver!

Insider trading!

quick markets roundup

welcome Bull

Brent crude at 113.54, up .56% on the day. but this week’s standards

hardly registers

WTI at 99.03

Euro flat now after an early move

Someone remembered that there’s a crisis going on

US stocks basically flat after inflation data hit expectations

exactly

anybody has something else, chime in

(Brick — talk of Monday but let me check)

so let’s talk insider trading

for a minute

will the Raj conviction actually be a deterrence, or a how-to manual for avoiding prosecution?

two opinions. first up

is the latter

from Frank Partnoy

First, although the case will generate publicity and chest-beating about insider trading, it will ultimately provide a “road map” for anyone looking to profit by trading on insider tips. Second, and even more troubling for regulators, the case illustrates how the government’s approach to insider trading is illogical and bad policy.

Moreover, and this is the second, deeper problem for regulators, it isn’t clear from this case what insider trading even is. Many business people do not understand why Mr Rajaratnam committed crimes related to Intel’s acquisition, yet it was apparently legal for David Sokol to buy Lubrizol shares just before it was acquired by his company, Berkshire Hathaway. There is no clear dividing line.

nonsense

There are muddy questions of “materiality”. And insider-trading law strangely requires someone (not necessarily the person who bought shares) to have breached a fiduciary duty to the source of the information. The US Supreme Court has called this convoluted requirement a judicial oak that grew from a legislative acorn. The focus on breach of duty makes the law maddeningly vague, and the links between trader and breacher can be attenuated. It is no surprise that Mr Rajaratnam’s jury took 12 days.

Anyone who examines the evidence against Mr Rajaratnam will see how he could have generated bad facts to avoid prosecution. First, don’t say anything that might be recorded. If you talk on the phone, be cryptic. Don’t buy hundreds of thousands of shares. Don’t make tens of millions of dollars of profits. Don’t buy immediately after you are tipped. Don’t trade in common shares. Instead, buy over-the-counter derivatives, swaps, options, or contracts for differences. … Most important, keep a contemporaneous record of reasons to buy other than the tip.

Thanks Frank

we’ll keep that in mind

and if hte case didn’t serve as an explainer

partnoy’s article sure did

@Mextor, @Brick: yup, Monday… that was also the date Geithner said in his letter last month

but in the end, we’re with our colleague john gapper

His argument is analagous to saying that watching the wire teaches you to be a drug dealers

Some will take the trial as a warning to cover their tracks more carefully and not to assume that only calls on trading floors will be listened to. Like the US raid on Osama bin Laden’s compound, which revealed that its special forces possessed stealth helicopters, everyone now knows that the SEC is willing and able to use wiretaps.

The obvious response to this for determined wrongdoers is not discuss anything sensitive via e-mail or on phones but to rely on face-to-face meetings. The techniques revealed in the trial will not eliminate abuse, just make it more time-consuming.

Still, the prosecutors and law enforcers deserve at least one day of celebration. They peered into the chasm of defeat during the jury’s discussions and have emerged with their powers and authority reinforced. For all those with an interest in clean markets, that is very welcome.

And therefore there will be more of them

John, exactly. a bit of a reductio, but we don’t stop pursuing thieves and murderers just because they know not to leave fingerprints

this makes it more expensive

@Brick… we’ve talked Tyco

Brick with a roster of companies with earnings today

we’ll get back to those

but firs

quick thoughts on CPI while we’re waiting for our pal izzy with some thoughts on commods

Did someone just ask us for macro thoughts?

Where’s taxloss to shoot them down

Take it away Cardiff

CPI headline up 0.5%, Core up 0.2%,

12-mo those are 3.2 and 1.3 respectively

to be honest

could have been worse

Paul Murphy iin the house, ladies and gentlemen

Former FT Alphaville editor and founder of the site. Now in charge of something called FT Tilt.

anyways, energy inflation actually slowed

From 3.5% in March to 2.2% in April

question is, of course,

how this affects thinking inside the fed

and here’s RQD with some thoughts on that

Fed take: the rise in the core CPI is welcome and the three-month core inflation rate of 2.1% in CPI terms is almost ideal. As for food and energy prices, they are temporary and are expected to subside so that headline inflation will fall back to the core rate. RDQ take: higher food and energy prices are in part (and perhaps in large measure) a result of the Fed’s ultra-easy monetary policy and core inflation and headline inflation will head significantly higher in 2011. We judge the acceleration in most major price sub-indexes as consistent with our view (only OER displays a relatively stable inflation rate on the 3- versus 12-month comparison and even here we expect upward pressure as the rental market tightens). We see higher inflation at the consumer level as hurting the consumer because the goods that are rising fastest in price are goods with low price elasticity (so consumers cannot easily substitute away from them and, as a result, suffer a real income hit). We now see year-over-year CPI inflation heading to 4% in 2011.

Whoa

4% — and you think politics in America is ugly now?

Don’t answer: we should just keep going

let’s switch to yahoo

sorry, yahoo!

just for you Brick

down 5.94% at the moment

Murphy, yellow!

So some interesting findings in the 10-Q

Yahoo said the sale of Alipay to a group controlled by Jack Ma, Alibaba’s founder and group chief executive, “occurred without the knowledge or approval of the Alibaba Group board of directors or shareholders”.

say what?

Basically accusing Alipay of going rogue

Their response today

“The Alibaba Group board discussed at numerous board meetings over the past three years the impending imposition of new regulatory requirements on the online payment industry, including ownership structures, as they were being developed in China,”

So apparently they did tell Yahoo

That they were about to sell a major asset to their chief executive

In any case it smacks of incompetency at best

The reliable Liar Liar pants of fire response

yes it does

Hey Brick, here’s your rationale for the big Dean Foods move

Goldman Sachs upgraded Dean Foods (NYSE: DF) from Neutral to Buy with a $19 price target, suggesting 55% upside.

The analyst believes margins have troughed and they see a path to margin recovery over the next few years.

Now up 11%

Analysts unsurprisingly

saying that this news is negative for Yahoo

e Continue To View These Developments As Negative For YHOO — A material amount of YHOO’s equity value is clearly tied to its stake in a very attractive Asian Internet portfolio, in our view, which includes Yahoo! Japan, Alibaba.com, Alipay, and Taobao. What’s specifically at stake here, in our opinion, is YHOO’s ability to monetize its stake in privately held Alipay and Taobao, which we have previously valued at approximately $20B – or at $5.6B to YHOO ($4 per share), factoring in YHOO’s 40% stake and a 30% illiquidity discount. (With very little public disclosure on Alipay and Taobao, our valuation is highly speculative.) Per our 5/11 note, recent developments indicate to us that YHOO potentially has become/is becoming a Forced Seller, and likely a Forced Seller at prices not determined by mutual negotiations or by the market. This is a Negative for YHOO, in our view.

Thanks Paul, knew we kept you around here for a reason

Basically, since Yahoo is increasingly reliant on Asia

But it can’t control the kids

On the other side of the world

It’s a mess

And a farce

And Citi reckon there’s more

Two Other Negative Issues Are Emerging — 1. With a now public dispute between Alibaba and Yahoo! over whether the potential of ownership transfer had been discussed previously, there will likely be some uncertainty over whether YHOO shareholders were appropriately informed by YHOO’s Board and management.

the proverbial tip

2. This is also the second major incident in two years involving a major U.S. Internet company facing non-commercial risk in China – the first was Google facing systems disruptions and code theft in China. At some level, this raises the overall risk profile for Internet/Media/Technology companies operating in China. It also raises other issues, in our view.

When was the last time you heard something good and unexpected from Yahoo?

I haven’t been on Yahoo since 1998

And only because HotBot wasn’t working

And Lycos was down

All eyes anyway on the Yahoo analyst day

May 25th

@wphilt, lol

but it’s an interesting point that citi make here

given the chinese flavour to M&As

and to tech IPOs

in the last 12 months

Yeah, well, have you seen RenRen lately?

has regulatory risk been priced in sufficiently

or is this just a case of Yahoo being a disaster

Opens at $14, shoots up to $19, now plummeting and

now at 12.58

Right then, now let’s head across the pond, shall we?

Our colleague Joseph C is in the house, but first

John, there were some numbers out Europe this morning, yes?

Remember the Cold War Cardiff?

Simple politics

Good art

Two Germanys

Well

vaguely. something about stopping, dropping, and rolling udner my desk as a kid

Germany just registered its strongest annualised growth since reunification

According to RBS at least

Growth figures

Eurozone Q1 GDP was +0.8% q/q

German Q1 GDP was +1.5% q/q

well then, plenty of $$$$ to bail out Greece, right? Is that how this works?

5.2% annualized

French GDP was +1.0% q/q

And then look who’s letting the side down

Italy’s Q1 GDP print was +0.1%

@Lefèvre — very true, although I here that Pippa Middleton is increasingly popular

And no-one mention UK GDP

All this gave a boost to the EUR vs USD

But then it came back down

As…[insert rationale*]

*people remembered there was a crisis going on

that

note

Joseph, are you around?

EUR very volatile today

Hello

now at 1.4235

@Bull… No. It’s a disgrace. Nearly one in two young people.

Hi JC

What’s on your mind?

Well, US rabble, it’s quiet in euroland today.

Deathly quiet

What?

sounds ominous

Actually, I have a reader appeal

What do readers think of the following statement

From the EFSF’s chief executive, Klaus Regling, on Ireland/Greece/Portugal

Which he characterised as (and I’m quoting verbatim here)

so far no more than a liquidity crisis

Cardiff just fell off his seat

Yeah, exactly

Wait, I’m back. Do the letters WTF mean anything in this forum?

I often wonder what US readers must think of stuff like that coming across the pond

because it terrifies us over here

They all think that europe should introduce a debt ceiling.

We think you’re all bat$hit crazy, and then we turn on the television to watch stories about the Tea Party and the debt ceiling

Touche, Cardiff

Anyway

I’ve got a bit on the ECB and the whole head in the sand thing regarding restructurings

which you might find interesting if you were talking about the euro

Interesting. Would also like to get your thoughts on core exposure and the odds of euro exits.

(And I see Felix on Twitter is asking how much of the ECB’s balance sheet is Greek debt)

(Always a sign, that)

definitely

Well the ECB holds probably just over €20-25bn of Greek bonds I think – and here’s a nice note from David Mackie of JPM

Although we do not expect any restructuring of Greek debt before 2013, our central view is that ultimately this crisis will be resolved through a sharing of the adjustment between Greece (through the generation of primary surpluses), the rest of the region (through lower interest rates on official loans) and holders of Greek market debt (through maturity extensions).

One institution which appears very opposed to this particular path is the ECB. Council members have spoken out strongly in recent weeks against the idea of debt restructuring. It is not entirely clear how to interpret these comments: is the central bank simply opposed to debt restructuring in the current environment due to the high risk of contagion, or is it opposed to all debt restructurings in all circumstances. Bini Smaghi’s comments suggest the latter: he appears to view debt restructuring as a political as well as an economic catastrophe, and something that undermines the integrity of the single market.

In our view, the ECB’s current position – if we interpret that position as an opposition to all types of debt restructuring in all circumstances – is untenable. Financial markets find it hard to believe that the rest of the region will socialise all of Greece’s liabilities, so they are pricing in an Argentinean-style haircut. That kind of debt restructuring would indeed be very disruptive for the region. The ECB should put its support behind a credible path which involves sharing the adjustment between Greece, the rest of the region and bond holders, with the latter being impacted by a maturity extension rather than a haircut. This path will involve more effort from Greece (in generating a primary surplus and ongoing reforms), more generosity from the rest of the region (in a much lower interest rate on liquidity support) and some private sector involvement (in the form of maturity extensions). This path is by far the most attractive one out there. It deserves the support of the ECB.

Nice, trenchant, and to the point

And therefore he may as well be talking Mongolian to the ECB

JC, i have a question foryou

As they don’t do to the point – just kicking the can

This note sounds similar to what Martin Wolf wrote earlier this week, and

Ah this one – http://www.ft.com/cms/s/0/f3f54cd6-7b36-11e0-9b06-00144feabdc0.html

can Europe’s strategy here really be as simple as: “let’s postpone and hope something good happens? is that it, or am i being simplistic?

PS what Tracy said on Greek exposure!

Tracy Alloway in the house! Hi

(From CBOE: Tyco- $TYC 8K July 55 calls trade against 8K July 60 calls on CBOE as shares rally 3%.)

€25bn is only counting the bond purchases

Anyway – I was putting off your question Cardiff

Um… well… what’s the good thing? Growth?

@Brick, flippancy aside, the gap between Democrats and Republicans pales in comparison to Germans and Greeks.

You saw the forecasts today – 3.5 per cent contraction for Greece this year

Already a double-dip for Portugal

Interest rates? They’re only going one way from this point

wait, i didn’t mean for it to look like i was advocating that strategy: i’m baffled by it.

Everyone not on Planet ECB is baffled, which I guess is the answer

i’m actually wondering what justification the EU is giving for this strategy of postponement

They need to postpone for bank exposures (ergo, ECB exposure) to drop

@BBB+… try saying that if they default.

BBB+ – Russia 1998 was a tiddler

full house in here: izzy kaminska, where you at?

Argentina was a tiddler

@BBB+ lol. I think it’s got something to do with clothes and emperors.

When they do finally restructure on what was – once – safe western sovereign debt, how does that affect risk premia for (currently) safe western debt

I don’t know – maybe not at all

Or, look at this way – neither Argentina / Russia were in a currency union

@BBB+ I no longer know what that word means.

yes im here, waiting for you to talk Commods

we’re gonna talk Commods RIGHT NOW!

And western banks hadn’t been mainlining exposure to ‘em for ten years straight

Anyway, I’m wittering on – onto commods!

ahhh… excellent

so what do you want to know.

I’m in Geneva you know…

izzy, all kinds of stuff happening these days. start with Glencore, maybe?

home of commod trading.

Glencore, I’ve been distracted from a bit because of the commodity rout.

But i saw they are pricing early right?

ommodities trader Glencore will close the books for its planned $11 billion initial public offering a day ahead of schedule, underscoring strong investor demand for its shares despite volatile commodity markets.
According to details in a term sheet seen by Thomson Reuters IFR and confirmed by sources close to the deal, subscriptions to the IPO will now close on May 17, though pricing will still go ahead as planned on May 19, the day conditional trading begins.

Ah there you go.

JM with the assist

Yes. Any surprise here?

well on surface this is a good news story… demand so high they can get it away early.

although it’s also pretty convenient given the commodity antics taking pace

@mutant dog — i was checking out the correlations today

Indeed.

High, but not as high as before

What impact will the routs have on the IPO d’ya think?

weird correlation between gasoline and silver last two days

but i was surprised to discover it has been higher in the past.

Re. IPO and rout

I guess, it is making people nervous for sure.

Let’s not forget, Glencore is a player in these markets too..

who knows. FOr now it looks like it’s the hedgies that caught out the most

Two interesting observations

first this one, from my favourite commodity analyst Olivier Jakob

@Bull is getting very excited about Silver traders in Shanghai, which I think is a new Scorcese flick.

The unexpected input last week in the mother-of-all-sell-off was that Open Interest in
WTI increased, suggesting that fresh money was coming into rather than leaving the
market in the big price drop. On Wednesday, the price of crude oil fell sharply and
Open Interest… increased again. Open Interest in NYMEX printed a new all time
record high on Wednesday and to have a rising Open Interest in market that is declining
is not a positive sign. In Gasoline however the Open Interest continues to fall
suggesting that gasoline is suffering from liquidation on both side of the aisle. First
short covering fueled the rally on Monday and Tuesday, followed by length liquidation.

So you see this suggests there wasn’t a liquidation in WTI per se.

just a position shift.

or even build up.

But what about in gasoline?

well, lots of fundamental news.

You’ve got the floods in the river I can’t spell –beginning with M — so I shan’t try.

and refinery utilisation is low

Padd 1 (atlantic basin) stocks are still really low in the grand scheme of things

so essentially everything is bullish

but the crack, as we all know has crashed

Everyone is blaming too much leverage in the market. Black boxes, and non-commercials

(Izzi, try this: Mrs M, Mrs I, Mrs Double S I,
Mrs Double S I, Mrs Double P I.)

i’ll never remember that JM

The cock crowed and the crack crashed, and the bulls cackled

@newblood – it really depends on their position.

(sorry)

@A Reader: yes.

And he’s going to pay for ad buys in gold.

@A Reader: oh yeah, and his first day of fundraising was a doozy

So the other big thing everyone is talking about is posssible government intervention in the market

Interesting.

huh

Quantitative Gasoleasing?

haha

tho we had a quote from Bernanke on that

i believe it was something like “the fed can’t print gasoline”

he then whispered, “regrettably”

but imagine if they could

Eric Holder is still sniffing around, citing speculative activity.

anyway some comments about silver

Although, the Saudis can, sort of. (Although not as much as many think.)

Yes please.

And then we’re out of here.

yep, i’m fading like a chinese internet stock

hahaha

Well I’ve been looking at flows in and out of the funds.

and again, there is an overiding consensus i’m getting from the market

namely strong hands taking out the weak hands

@newblood – i don’t think they would have just stopped trading

BTW Being long the cracks into the driving season is known as the widowmaker trade

On that note…

http://www.reuters.com/article/2011/05/12/us-gasoline-widowmaker-idUSTRE74B0RM20110512

indeed — time to sign off.

Let’s get out of here.

Nice weather in geneva that has to be taken advantage of

Thank you ROTR for sticking with us.

This is easily the longest US ML evah, not that the track record is long

And thank you London and Geneva for

but we draw the line at 76 minutes. wait, 77

the skinny on the old continent.

Have a great weekend everyone

Thanks everyone — shout out to Mextor for sticking with us from minute 1

Yes, he wins a prize

Take care all, see you next week — no more Fridays off for us

First US ML t-shirt

whenever they’re made

Anyways…

Bye!

We’re off, bye!

This entry was posted by Cardiff Garcia on Friday, May 13th, 2011 at 15:01 and is filed under Uncategorized. Edit this entry.

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US Markets Live transcript 13 May 2011

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