The coco bond market has endured its Paradise Lost moment.
The main index has fallen nearly 8 per cent this year after returning 7 per cent in 2015 – practically utopian, in the current rates environment. Some names – Deutsche, UniCredit, Banco Popular – have experienced the distress of trading below 75 cents on the euro.
Let’s briefly set aside these qualms of heart-sick malady. Let’s turn instead to the mostly untold tale of a $2.5bn Credit Suisse 6.25 dollar-denominated AT1 bond. CS 6.25, as we’ll call it. Read more
Many shale producers outspend cash flow and thus depend on capital market injections to fund ongoing activity.
That’s from Citi’s Richard Morse and Edward Morse (related?), plus team, on the way capital markets rather than cartels are driving commodity prices these days. The note is titled: “From Cartel to Capital Markets: Investors Join OPEC Shaping Oil Market Dynamics.”
This of course relates to our point on Monday that even the big commodity traders have been forced to turn to market-based funding in lieu of a dearth of bank finance in the sector. Read more
Paul Donovan, economist at UBS, is perplexed by cyclically abnormal levels of capital spending relative to borrowing costs in key western economies.
All the more so given that the sluggish capital spending story is also being accompanied by a significant increase in the number of businesses.
Since these two facts don’t logically tally up, what exactly is going on?
One point to consider, Donovan notes on Tuesday, is that capital spending by and large is associated with replacement investment. For new businesses this usually takes the form of start-up capital spending instead. Read more
Ryan Avent takes issue with my take on Piketty. He makes two points, which I’ll address in turn.
First, the French data [Smith] considers is a bit of an outlier. You can download Mr Piketty’s data tables (in French) here and see the figures for Britain and America. In Britain the recent rise in the capital-income ratio is about two-thirds attributable to housing and one-third attributable to other domestic capital. In America growth in other domestic capital is actually more important than growth in housing.
Almost a year ago the Telegraph’s Thomas Pascoe put out an interesting piece on gold. We’ve decided to reprise it this Friday because we think it offers an interesting and useful perspective on current developments in the gold market:
One of the most popular trading plays of the late 1990s was the carry trade, particularly the gold carry trade. In this a bank would borrow gold from another financial institution for a set period, and pay a token sum relative to the overall value of that gold for the privilege.
Spain’s Popular bank has got backing for a €2.5bn rights issue. But here’s the thing we think deserves a touch more attention — in the run up to the rights issue, Popular once again ramped up its holdings of its own shares, from 0.588 per cent in July to 3.979 per cent on the second of November (data here). We still find this odd…
Our London colleagues had a tech blowout earlier today, but Paul and Bryce will be on with us for part of the session to cover some of what we missed.
Otherwise, we’ll be talking US macro ahead of this Friday’s job numbers, the T-Mobile/MetroPCS tie-up talk, the Google-Samsung-Apple patent wars, the latest out of Europe, and yes, that other thing that happened this morning. Read more
David Dayen of Firedoglake has a useful summary of the ways in which the New York Attorney General’s lawsuit against JP Morgan mirrors the previous Ambac case. He concludes on a pessimistic note (our emphasis):
The larger point is this. Not only does there seem to be no new evidence or investigations or legal theories in this case, but the bulk of it was copied off a separate case filed by someone in Schneiderman’s office years ago. Gretchen Morgenson says that the subpoenas in the case all came from Schneiderman’s office in April 2011, long before the RMBS working group ever existed. The Justice Department will apparently try to take some credit for interviewing Clayton Holdings employees in the case, but again, the Clayton Holdings element of this case has been public knowledge through the FCIC and Cuomo’s time as AG going back many years. And if DoJ was so helpful, why didn’t they bring any charges? No federal charges were filed in this case, which represents fairly obvious federal securities fraud. And they have longer statutes of limitations available to them, meaning they would be able to sue for more money, since the cutoff would not be October 2006 but much further back. … Read more
A less dramatic reaction than when he told the world to wake up and smell the Green Mountain Coffee, but Chipotle is a modestly-sized company and was already down more than 6 per cent on the year before David Einhorn made the short sale recommendation at a conference today.
Last week FT Alphaville drew attention to the fact that HSBC had joined the cohorts of the “don’t call QE money-printing” brigade. We thought this was great progress for the mainstream analyst community.
Moreover, we thought their explanation was really good. Read more
Spotted on Tuesday — a market getting itself in a lather as soon as the Spanish prime minister denies that a bailout is ‘inminente’. (Via Google Finance)
The Oliver Wyman report landed last week. The headline was that Spain’s banks would need almost €60bn in new capital and that seven out of the 14 Spanish banks under review failed the ‘bottom up’ test.
The actual recap figure was €59.3bn, falling to €53.7bn because banks are allowed to count in both mergers in which they’re involved and deferred tax assets. We expressed some scepticism about those DTA’s and the rather hopeful proposition that… Read more
Quick. Someone grab a samovar! Russian liquidity it is on-tap.
In fact, Russia’s recent liquidity operations have been so substantial, they almost make Chinese efforts look puny in comparison. Read more
… or something. You can’t make these people up:
[Anthony] Scaramucci, the organizer of the dinner, told me the next day that the guests had witnessed the “activation” of a “sleeper cell” of hedge-fund managers against Obama. “That’s what you see happening in the hedge-fund community, because they now have the power, because of Citizens United, to aggregate capital into political-action committees and to influence the debate,” he said. “The President has a philosophy of disdain toward wealth creation. That’s just obvious, O.K.? We talked about it all night.” He later said, “If there’s a pope of this movement, it’s Lee Cooperman.”
It’s really hard to predict the eventual outcome of the fiscal cliff negotiations that will take place after the elections, but the media reports that there is little enthusiasm for extending the payroll tax cut (in place since January 2011) are starting to pile up.
Annie Lowrey in this morning’s NYT: Read more
Something of a surprise given the weakness of the overnight numbers in China and in Europe:
Fact du jour on collateral accepted at European Central Bank liquidity ops, via Benoît Cœuré, ECB executive board member:
...non-marketable assets and above all, credit claims (i.e. normal bank loans) have become the largest single asset class in our collateral portfolio.
UPDATE: A Treasury official got in touch with us after reading this post to explain a little more clearly what happens next.
First a bit of background. Dodd-Frank section 120 authorises the FSOC “to provide for more stringent regulation of a financial activity by issuing recommendations to the primary financial regulatory agencies to apply new or heightened standards and safeguards… if the Council determines that the conduct, scope, nature, size, scale, concentration, or interconnectedness of such activity or practice could create or increase the risk of significant liquidity, credit, or other problems spreading among bank holding companies and nonbank financial companies, financial markets of the United States.” Read more
Seven (many already nationalised) lenders, comprising 37 per cent of Spanish banks’ loan portfolios, failed and need more capital. Seven lenders passed.
It’s almost €60bn, as initial estimates had suggested in June. Read more
Big props to Bloomberg for putting this little-known case on the radar (don’t worry, we’ll explain):
This is reassuring (or not – we can’t decide). The Global fixed income strategy team at HSBC *believe* they’ve come up with a non-consensus view on the effects of QEternity:
Our non-consensus view is that QE3 will drive US Treasury yields to new lows
From BNP Paribas’s Harry Tchilinguirian and Gareth Lewis-Davies on Friday.
The latest crude and product stock position in the United States: Read more
US money market funds are still cautious about building up exposure to European banks.
However, according to Fitch’s latest Macro Credit Research report on Friday, they seem much more confident about building up exposure on secured terms. As a result, repos as a percentage of exposure to European banks is on the rise to new post-crisis levels: Read more
Presenting, a rather charming tale from Nicholas Colas, group chief market strategist at ConvergEx, who recently attended an algorithm-themed conference, and discovered — to his surprise — that quants aren’t really like regular people.
(Emphasis from Colas.) Read more
First there was Copper Fingers. Then there was Choc Finger. Later we had The Whale.
What all of these traders respectively had in common (and no, they weren’t all Bond villain rejects) was that they all became the markets they were trading. Read more
What a strange week it’s been for Research in Motion.
Last Friday the company had another of its periodic power outages, and on the same day that Apple launched its new iPhone no less. Read more
We’re talking about money market fund reform, of course.
It was just August 23 that Mary Schapiro threw up her hands when it became clear that she wouldn’t get the necessary two additional votes from SEC commissioners for her proposal after an intense lobbying effort by the industry. Read more
“Mad. Mad. Mad. Bernanke’s gone totally MAD, I tell you!”
“What’s he thinking with QEternity? It’s so inflationary. AGHH!” Read more