October, 2011
FTfm on AV
Some highlights from Monday’s FTfm.
Few FoHFs yield value
As yet unpublished academic research has found that only about 5% of funds of hedge funds deliver value and investors would do just as well
The Weekender
This week on FT Alphaville,
- The US labour market declined.
- PrimeX went mainstream, and we explained why.
- Banks remained mysteriously full of second mortgages.
- European stress tests got more stressful.
Further further reading
For the commute home,
- The latest from the tragic farce that is Harrisburg’s bankruptcy.
- All-in and all-out.
- Krugman and Cowen on Keynes. (Not a joint post, obviously.)
- Two mortgage plans.
US to Brics: thanks, but Europe needs to save itself
Not quite, but near enough, according to reports on Friday afternoon from the FT and Reuters.
The pink paper revealed on Thursday that Bric countries were looking at ways to support the eurozone, such as via a unicorn SPV,
[Something for the weekend] Here comes the Rayne again
– By Neil Collins –
Once upon a time, Max Rayne ran London Merchant Securities much as he wanted to. Many years later, it now seems that his son, Robert, would rather like to do the same with LMS Capital,
The No Free Deliciousness Principle
Guest post by Emanuel Derman
Foods with equal deliciousness should sell for equal prices per ounce.
Who can argue with this? Not homo economicus. It seems completely reasonable: if that weren’t the case,
PrimeX makes primetime
Earlier this week, FT Alphaville brought you a structured finance index primer. Now that everyone’s up-to-speed, let’s take a look at the latest price action, look at some (gasp!) fundamentals, and stir the debate on subprime versus prime — a party that we are admittedly fashionably late to.
NYSE Euronext’s bizarre internalisation U-turn
US market structure watchers may have noticed something very interesting occur this week.
On Oct 12, the NYSE Euronext filed a proposal to the SEC to create a new “Retail Liquidity Pilot Progam”. According to Joe Saluzzi at Themis Trading,
Just when it makes sense to sit in oil futures…
… many funds have stopped buying.
While at first that move might seem logical — they are obviously expressing a bearish view when it comes to future demand — it’s actually another example of how the mechanics of the market see funds damned if they do and damned if they don’t.
Greek haircuts vs Greek debt cuts
The difference between a (hair)cut taken on Greek bonds held by investors and a cut to actual Greek debt — illustrated by UBS:
In short, as shown in the above chart, a 50% haircut effectively equates to a 22% reduction in existing debt once the [Greek] banks have been recapitalised.
US Markets Live transcript 14 Oct 2011
Markets Live chat transcript for the chat ending at 15:14 on 14 Oct 2011. Participants in this chat were: Cardiff Garcia Izabella Kaminska Joseph Cotterill, FT CGHello! IKHello
Reminder: US Markets Live at 10am New York, 3pm London
A rare treat for the American Rabble today as our Geneva-based correspondent Izabella Kaminska is in New York and will be joining us for the full hour.
Izzy will be discussing, well, she’s not really sure yet — and all we know is how giddy we are about taking a wonkadelic trip into her mind.
You’re all wrong (on RBS)
A headline like that can only mean one thing — another rant from Europe’s Dick Bove.
In Friday’s note, Evolution’s Ian Gordon slams regulators, the press and his peers for their stupid coverage of his beloved RBS.
Markets Live transcript 14 Oct 2011
Markets Live chat transcript for the chat ending at 11:36 on 14 Oct 2011. Participants in this chat were: Neil Hume, FT Joseph Cotterill, FT Lisa Pollack, FT NHHola Rabble NHsorry for being late
How much bad debt can China’s banks take?
China’s inflation rate fell in September, which is what pretty much everyone wanted.
Only a small decline though — to 6.1 per cent from 6.2 per cent in August. The food price inflation rate remained the same at 13.4 per cent.
What’s an EFSF guarantee worth?
As momentum gathers behind the (deep breath) first loss guarantee on new issuance approach for Europe’s bailout vehicle, Gary Jenkins examines some of the pros and cons.
Leverage aside, the biggest plus point,
Your deterrent is my bluff
Two revealing quotes on the EFSF insuring sovereign debt…
The first, via the WSJ:
“It is a system we already know functions well and could encourage foreign investors to come back to the euro zone,
Further reading
Elsewhere on Friday,
- European spreads are feeling stressed.
- But not as stressed as they’d feel on a Sunday.
- Concerning Ukraine and China’s Gazprom contracts.
- The echo chamber of climate change denial.
Pink picks
Comment, analysis and other offerings from Friday’s FT,
FT interview: Jean-Claude Trichet
For 30 years, whenever economic crises hit the world, Jean-Claude Trichet was at the centre of action, the FT’s Lionel Barber and Ralph Atkins write.
Snap news
Breaking pre-market news on Friday,
- Jupiter says assets under management proved resilient in face of significant declines in world equity markets — statement.
- Asos confidence of meeting market forecasts — statement.
S&P downgrades Spain to AA- from AA
It’s midnight in Madrid, and that — obviously — calls for an S&P downgrade of the Spanish sovereign to AA- from AA.
Full text below. It’s all pretty standard analysis, frankly, so go back to bed Europe…
Further further reading
For the commute home,
- Who’s actually getting sub-4% mortgage rates?
- Natural disasters in the US since 1980.
- Average household income, protest sign edition.
- The Obama administration’s biggest macroeconomic mistake.
The decline of US labour market dynamism, secular and cyclical
This simple graph, pulled from a presentation by economist John Haltiwanger, is a tidy illustration of what David Leonhardt means when he writes that the ongoing labour market ossification is a disturbing mix of both secular and cyclical trends.
How one bank’s default is the same bank’s gain
JP Morgan came out on Thursday with a juicy $1.9bn gain from debit valuation adjustments (DVA) as a result of their widening credit spreads. This acted to offset some of the loss on credit valuation adjustments (CVA).
S&P takes away (CDO) diversification candy
Some very interesting proposed changes to Standard & Poor’s rating methodology for CDOs made of stuff like ABS, in the following request for comment, we think:
Standard & Poor’s Ratings
Raj Rajaratnam sentenced to 11 years for insider trading
On 11 May former Galleon boss Raj Rajaratnam was convicted on all 14 counts of alleged securities fraud and conspiracy. He was in court in New York on Thursday to receive his sentence:
RTRS – US JUDGE SAYS INTENDS TO SENTENCE FUND MANAGER RAJ RAJARATNAM TO 11 YEARS IN PRISON FOR INSIDER TRADING – COURT HEARING
This is among the longest sentences ever given for insider trading.
The interview without answers
A *FAIL* of epic proportions from the comms department of BNP Paribas.
(click to enlarge)
The back-story here is that Handelsblatt interviewed BNP boss Baudouin Prot who subsequently insisted on revising his answers.
DVA under the influence at JPMorgan Chase
It’s a good job no one is sad enough to make drinking games* out of US bank financial results (it’s way too early in the morning, anyway)…
Because if you’d taken a swig every time JPMorgan Chase mentioned “DVA”
Markets Live transcript 13 Oct 2011
Markets Live chat transcript for the chat ending at 11:23 on 13 Oct 2011. Participants in this chat were: Neil Hume, FT Joseph Cotterill, FT Lisa Pollack, FT NHHola NHwelcome to ML
Taking the stress test to nine (ex-bad stuff)
Just like the good old days. A Pestowire ‘exclusive’ on banking recapitalisations.
From the BBC:
The European Banking Authority is proposing that eurozone banks should hold capital equivalent to between 9% and 10% of their risk-weighted assets,