May 2009
38 posts
Fragmented Bondholders
Via Portfolio.com, 21/1/9
During the Great Moderation, institutional fixed-income investors had boring, if lucrative, lives. They’d buy paper, clip coupons, and make money. Now, however, faced with a stream of high-profile defaults, they’re going to have to start justifying their former paychecks by getting down in the trenches with the distressed companies they lent money to, and...
The politics of rating the USA
Via Felix Salmon, 22/5/9
When I said yesterday that any S&P downgrade of the USA “would be entirely political”, I was referring not to US politics but rather to the internal politics of S&P and even of McGraw-Hill, its parent: my guess is that no such decision would be made without the explicit consent not only of McGraw-Hill’s CEO but even of its board.
If you want proof that US...
Citigroup’s doomed IT strateg
Via Felix Salmon, 22/5/9
Why do I get the feeling I’ve seen this movie before?
Citi had originally estimated it could save $3bn over three years by rationalising its operations and technology functions, which employs 140,000 people including 25,000 software developers - more than many IT companies.
But recent progress in reducing overlaps between systems, and linking IT infrastructure across...
The end of Sri Lanka's war: Tainted triumph
A bloody victory won, Sri Lanka’s government urgently needs to make peace with the Tamil minority
Via The Economist, 21/5/9
AFP FOR Sri Lanka’s government and many of its citizens, reactions in the West to the final phase of its 26-year war with the Tamil Tigers have reeked of sanctimonious hypocrisy. The world knows the Tigers to be vicious terrorists. To stave off defeat, they held tens of...
Climate change and Congress: Weak Medicine
Compromise has enfeebled America’s cap-and-trade bill. A carbon tax would be better
Via The Economist, 21/5/9
EPA FOR those who believe that climate change is a serious problem, the decisions that America makes now are of momentous importance. In Copenhagen in December, the world will decide whether to reinvigorate or abandon its effort to avert serious climate change, and what America does...
Decoupling 2.0
The biggest emerging economies will recover faster than America
Via The Economist, 21/5/9 Bloomberg REMEMBER the debate about decoupling? A year ago, many commentators—including this newspaper—argued that emerging economies had become more resilient to an American recession, thanks to their strong domestic markets and prudent macroeconomic policies. Naysayers claimed America’s weakness would fell...
After India's Election: Good news: don't waste it
The voters of the world’s biggest democracy have given their government a precious second chance
Via The Economist, 21/5/9 AFP INDIA is a land of bright promise. It is also extremely poor. About 27m Indians will be born this year. Unless things improve, almost 2m of them will die before the next general election. Of the children who survive, more than 40% will be physically stunted by...
Nepal's political crisis - Two armies into one...
Via The Economist, 7/5/9
With peace in its grasp, Nepal is let down by its politicians and its army
TO MUCH of the outside world, Nepal has seemed blissfully quiet in recent months. The peace process that ended a bloody ten-year civil war in 2006 seemed on track, and outsiders could go back to seeing the place as a small Himalayan holiday-spot of little concern.
But Nepal is neither...
On the offensive - Pricked by America, Pakistan’s...
Via The Economist, 12/5/9
WHETHER Pakistan’s army now intends to crush the Taliban, as America hopes, is unclear. But its latest offensive against a Taliban chieftain in North-West Frontier Province (NWFP), launched last week in response to unprecedented public goading by America, looks painfully serious.
Over 360,000 people have fled NWFP’s Swat valley, where the army is pounding...
A turning tide? The oil price rises amid hints of...
Via The Economist, 13/5/9
THE price of oil reached over $60 a barrel during intraday trading on Wednesday May 13th, its highest point since November. Glimmers of economic recovery, such as an increase in imports from China, together with a weak dollar and tight supply forecasts have pushed up the prices of many commodities. Coffee, sugar and wheat have all hit modest peaks this week. Exporters of...
A quick note on the yield curve for Alex Balk
Via Felix Salmon, 13/5/9
Let’s say you have two apples. You’re scared of losing those apples, and you want to be sure that they’re absolutely safe. So you give them to the government, and in return the government promises to give you back two apples in a year’s time. You’re happy, and the government gets to eat your apples today, not worrying about paying you back until this time next year. So...
Ford’s stock issue makes more sense than...
Via Felix Salmon, 12/5/9
Ford is issuing equity and will probably use some of the proceeds to buy back debt. At the same time, Microsoft is issuing debt and will probably use some of the proceeds to buy back equity. Which one makes more sense? The answer, quite clearly, is Ford. There’s basically only one good reason why companies would want debt rather than equity, especially in these days of...
Peer-to-peer lending in China: An internet...
Via The Economist, 7/5/9
DOTCOMS in China have long been known for shamelessly stealing the business models—and sometimes the visual appearance—of popular American websites and simply recreating them in Chinese (known as the “copy to China” model). This approach has spawned copies of Facebook, YouTube, eBay and other well-known sites. But many Chinese sites do more than just copy, tweaking...
Opening the floodgates: Imports can be as useful...
Via The Economist, 7/5/9
PAUL KRUGMAN, who won last year’s Nobel prize in economics for his work on trade, wrote in 1993: “What a country really gains from trade is the ability to import things it wants. Exports are not an objective in and of themselves; the need to export is a burden that a country must bear because its import suppliers are crass enough to demand payment.”
This view does not...
Silvio Berlusconi's divorce Put asunder
Divorce could yet do political damage to Italy’s prime minister
Via The Economist, 7/5/9
JUST when it seemed that nothing could touch him, Silvio Berlusconi faces the biggest obstacle to be put in his way since he returned to the job of Italian prime minister a year ago. It was placed there by his wife, Miriam Bartolini (known by her former stage name of Veronica Lario), who on May 3rd let it be...
Gordon Brown: A hunted man
Why the prime minister will probably limp through to the election
Via The Economist, 7/5/9
RARELY in his troubled premiership has Gordon Brown looked likely to win the next general election, which many expect to take place on May 6th 2010. He is now preoccupied with surviving long enough to contest it. The transient fillip to his popularity from the G20 summit he hosted in April has given way...
Fatal (Fiscal) Attraction: Spendthrifts and...
Via Social Science Research Network, 27/2/9
Abstract: Although much research finds that “birds of a feather flock together,” surveys of married adults suggest that opposites attract when it comes to emotional reactions toward spending. That is, “tightwads,” who generally spend less than they would ideally like to spend, and “spendthrifts,” who generally spend...
The greater of two evils: Inflation is bad, but...
Via The Economist, 9/5/9
MERLE HAZARD, an unusually satirical country and western crooner, has captured monetary confusion better than anyone else. “Inflation or deflation,” he warbles, “tell me if you can: will we become Zimbabwe or will we be Japan?”
How do you guard against both the deflationary forces of America’s worst recession since the 1930s and the vigorous response of the Federal...
US jobless hits 25-year high
Via Financial Times, 8/5/9
US unemployment climbed to 8.9 per cent in April, its highest level in a quarter of a century, as the economy shed more than half a million jobs, official figures showed on Friday.
The latest non-farm payrolls data found that 539,000 jobs were lost in April. But the decline was down from a revised 699,000 the previous month and the smallest monthly total since...
Wells and M Stanley raise new capital
Via Financial Times, 8/5/9
Wells Fargo and Morgan Stanley on Friday announced they raised $7.5bn and $8.0bn, respectively, the day after the US government’s stress test showed they faced capital shortfalls.
Wells Fargo, which faces a $13.7bn capital shortfall, priced a $7.5bn offering of 341m shares at $22 per share. The bank on Thursday had said it would be selling a lower $6bn in common...
The stress test’s biggest loser: GMAC
Via Felix Salmon, 7/5/9
The stress test report is out, and the gory detail is all there on page 9 (which is page 10 of the PDF). The final row is the one everybody’s concentrating: the “SCAP Buffer”, or the amount of money these banks will need to raise in order to come into compliance with the stress test. By far the biggest number on that row is the $33.9 billion for BofA, but that’s just 2% of...
The SEC is unsalvageable
Via Felix Salmon, 7/5/9
This is one of the driest pieces of prose you’ve ever seen: a 64-page report from the Government Accountability Office on the subject of the SEC, entitled “Greater Attention Needed to Enhance Communication and Utilization of Resources in the Division of Enforcement”. The “Results in Brief” spreads over six pages and is full of stuff like this:
While Enforcement had...
Battleground Ipoh: Nizar still seeks dissolution
Via The Star Online, 7/5/9
5:10pm Former mentri besar Mohammad Nizar Jamaluddin tells reporters that Pakatan does not acknowledge R. Ganesan as the Perak Speaker nor does it recognise Thursday’s proceedings as legal.
He says Pakatan assemblymen stayed to listen to the Royal Address out of respect to the Raja Muda of Perak, Raja Nazrin Shah.
He says he is still going to seek an audience with the...
Markets
Via Financial Times, 1/5/9
A pandemic of green shoots, a world infested by signs of hope of recovery, and a big market rally. The FTSE All-World index has risen by 31 per cent since its March low. The VIX index – a gauge of market fear – has more than halved from its year-end high, although it still remains well above pre-crisis levels. Best of all, the interbank lending market is creaking open....
European bank valuations
Via Financial Times, 6/5/9
Shame on any bank that has not seized on the rally in financial stocks to set in motion plans to raise fresh equity capital. The investor mood is as good as it is likely to get. Promising first-quarter results from Credit Suisse, Deutsche Bank and, on Wednesday, BNP Paribas, have ignited the touch paper under European bank stocks. The FTSE Eurofirst 300 banks index has...
Bank stress tests
Via Financial Times, 6/5/9
It’s oddly masochistic to be so looking forward to something called a “stress test”. While the anticipation has been universal, however, few agree on what Thursday’s results will achieve – or even whether the tests were a good idea in the first place. The debate is muddled because the main protagonists have completely differing expectations.
Take the US government...
Changing course: Bank of America’s shareholders...
Via The Economist, 30/4/9
KEN LEWIS, the boss of Bank of America (BofA), famously said he had had as much fun as he could stand in investment banking in the autumn of 2007. How on earth must he feel now? Mr Lewis’s decision to buy Merrill Lynch in September has cost him his reputation, his independence and, on April 29th, one of his many titles. At the bank’s annual general meeting shareholders...
Why asset managers should ignore credit ratings
Via Felix Salmon, 5/5/9
Jonathan F (a/k/a my boss) wonders whether Goldman’s decision to ignore credit ratings when it comes to bond-investment mandates might not be counterproductive:
The problem with using market prices as a signal for any market action is that it tends to encourage herding by making any market movement self reinforcing. So if a company’s spread widened (or its stock price...
BofA’s state of denial
Via Felix Salmon, 6.5.9
The NYT finally gets one of the stress-test anonymice on the record today, in the person of Steele Alphin, BofA’s chief administrative officer, and what he said is flabbergasting:
Mr. Alphin noted that the $34 billion figure is well below the $45 billion in capital that the government has already allocated to the bank, although he said the bank has plenty of options to...
Stress Test Flunkie Bank Of America Up 36% This...
Via The Business Insider, 6/5/9
Up is down. War is peace. Stress test failure is only good news.
During a week in which there were several reports about Bank of America (BAC) needing to expand its capital cushion, by as much as $34 billion, shares in the bank have been on a tear. Last week they closed at $8.97. Today they’re 36% higher at $12.22.
It’s not a bad week for Ken Lewis,...
Stress Test Shocker
Via Felix Salmon, 6/5/9
So much for anchoring. You thought BofA might need $10 billion in new capital? Try $35 billion. Or, in English, lots and lots and lots of money — much more money than the bank could conceivably raise privately.
The first obvious question is “if BofA needs $35 billion, how much does Citi need?”. Which leads straight into the question of how much the other 19 banks need, in...
Decoupling is back on track
by Alastair Su, 4/5/9 Ok guys, its finally happening
Quite a while ago I warned on this blog that though financial crisis might have disproved the decoupling theory, it was too premature to abandon the theory altogether as the crisis would most likely precipitate the beginning of decoupling and a new world order. I predicted that the crisis would sever Asia’s dependence on US markets, forcing...
Asia 'must cut export dependency'
China and India backed Mr Kuroda’s calls to boost domestic de
Asian governments must cut reliance on export-driven growth and spend more to cut poverty, Asian Development Bank (ADB) finance officials have said.
Via BBC, 3/5/9
Countries must restructure to focus on domestic demand as they grapple with economic chaos, the banks’ annual meeting in Indonesia was...
Keep religion about politicking
By Li Xueying, Via Straits Times, 27/4/9
IN SINGAPORE’S multiracial and multi-religious society, it is ‘potentially dangerous’ for religion to ‘descend into the fray of petty politics’, warned the Minister for Community Development, Youth and Sports on Sunday.
Dr Vivian Balakrishnan made it clear that it is not a good idea to mix religion and what he called the...
The Great Repricing - George Yeo
The Great Repricing
Madam Pro-Vice Chancellor, Kate Pretty, my old tutor, Professor Navaratnam, dear friends, ladies and gentlemen, it may seem inauspicious that Cambridge should be celebrating its 800th Anniversary at a time when the world is heading into a deep recession the likes of which have not been seen for a long time. From the perspective of Cambridge’s long history, however, this sharp...
Citi Said to Need Up to $10 Billion
By DAVID ENRICH and DAMIAN PALETTA
Via Wall Street Journal, 4/5/9
WASHINGTON — Citigroup Inc. may need to raise as much as $10 billion in new capital, according to people familiar with the matter, as the government continues negotiations with banks over the results of its so-called stress tests.
The bank, like many others, is negotiating with the Federal Reserve and may need less if...
Chrysler's Bankruptcy Deals Blow to Affiliates
By ALEX P. KELLOGG and JEFF BENNETT
Via Wall Street Journal, 4/5/9
Pressure mounted on Chrysler LLC as the auto maker was forced to idle four plants and its dealers scrambled to find new sources of credit a day after the company filed for Chapter 11 bankruptcy protection.
The developments sparked fresh questions about Chrysler’s prospects for quickly exiting from bankruptcy protection and...
A painful tune
How swine flu is infecting Mexico’s economy
Via The Economist, 4/5/9
TRADITIONAL May Day rallies have been cancelled in Mexico as the country begins a five-day suspension of “non-essential” activities. The president, Felipe Calderón, has called off (or put behind closed doors) sporting events and concerts, ordered the closure of bars and nightclubs, and introduced general measures to keep...
April 2009
3 posts
China's Stimulus Spurs US Business
By JAMES T. AREDDY and TIMOTHY AEPPEL
Via Wall Street Journal, 30/4/9
China’s efforts to quickly pump up its economy are providing a much-needed boost for U.S. businesses as well.
A growing number of companies, from tire and excavator makers to fast-food chains, are benefiting from China’s $585 billion stimulus program, which has quickly funneled money into everything from bridges...
An imminent pandemic: the WHO raises its warning...
Via The Economist, 30/4/9
BY THE morning of Thursday April 30th 2,500 Mexicans were known to have symptoms that looked like the result of a new strain of influenza, and more than 170 had died, though only eight of the dead were confirmed carriers of the new virus. That virus has now turned up in 12 other countries on four continents and the deaths have begun beyond Mexico’s borders, starting...
Bank debt-for-equity swaps: Where do you draw the...
Via Felix Salmon, 30/4/9
David Leonhardt seems to be on roughly the same page as me when it comes to debt-for-equity swaps at America’s banks:
In February, the Treasury began twisting the arms of some holders of Citigroup preferred stock to get them to convert it into common stock. (Preferred stock, despite its name, is something between a loan and stock.) The credit markets hiccupped, but...