Daily News Roundup 2012: Monday 30 April

Good morning

The headlines:

1. Hedge funds are betting against the Eurozone. There is a core group of hedge fund managers (including John Paulson - who keeps being mentioned in books written by Michael Lewis) that has been rejoicing in the Long Term Refinancing Operations of the ECB. The theory is that German bonds are underpriced (their yields are near zero). Why? Well if you continue to look at Germany as a separate economy, then it makes sense to buy their bonds compared to other countries in the Eurozone. But practically speaking, the Eurozone is a collective economy, and the German bonds should be pricing in the risk of a default from, say, Spain. Germany would probably step in to help with a bailout, which would significantly alter its risk profile. What happens in that scenario? The price of bonds drop, and yields go up. And the other side of the equation is credit-default swaps. Because the current yields on the German bonds are so low, credit-default swaps are cheap (around 86 basis points per annum - or 86 cents for every $100 of protection). And as the yield goes up, so does the price of credit-default protection. If the German CDS spreads go back to their December 2010 levels of 121 basis points, that's a gain of almost 50% for current holders of default protection. It's not insuring against the risk of default so much as betting on the change of default risk relative to the other members of the Eurozone. Link: Hedge funds support Hollande.
2. Facebook snubs Wall Street. At least, that's what Wall Street is saying. The reasons? Well, Marky Mark doesn't want to go to the roadshow, which I believe makes the Wall Streeters feel like they're not wanted enough. Facebook is also maintaining control over the allocation of shares - and it's rumoured that they're going to screen the applicants for weed out the short-term individual investors in favour of long-term institutional ones. It mostly wrote its own exchange filing, thereby depriving first year analysts of weeks of review and amendment and change of font. I reckon that there's a lot of reference to Fecesbook in internal mails between bankers... Link: Mr Zuckerberg ignores the rules.
3. Clinton and Geithner are still going to visit China, despite reports that the US is sheltering a Chinese activist. Legal Activist Chen Guangcheng escaped house arrest in Shandong and fled to the US embassy in Beijing. Has anyone else noticed the string of chinese "defectors" fleeing to US embassies in China? If I was into conspiracy theories, I would say that those Sino-US relations are under attack. Link: Annual US-China talks to continue.
4. China invests in South Sudan. The $8 billion loans will be used over the next two years for infrastructure improvement. However, it looks like one of the requirements is that the construction companies used be Chinese. Which looks a lot like China lending money to South Sudan to pay China. And then South Sudan will repay the original loan to China, plus interest (in whatever form the interest will take). China will no doubt get some more pre-emptive rights to oil. The deal sounds sweet! Link: South Sudan's $8 billion loan.
5. Australian Billionaire to build the Titanic II. But I don't understand why? How expensive is it to maintain ocean liners - and is there really a grand demand to travel by boat? Link: Titanic Reloaded.
6. Syria continues to fall apart. There's not much more to be said really. Link: Syrian Peace Plan not working.
7. Lakshmi Mittal is not giving up on India. Link: "The India Story is not over".
8. Malawi is to devalue its kwacha to meet IMF Aid Requirements. The devaluation by 40% will allow Malawi access to IMF aid. The World Bank may help by offering grants to help cushion the impact of a sudden devaluation (presumably the grant can be used to subsidize imports, thereby slowing the cost-push inflationary impact?).  Link: Banda to devalue kwacha by 40%.

That's all for now!

Have a good day.

Daily News Roundup 2012: Friday 27 April

Good morning

The headlines:

1. Deutsche Bank quarterly profits are down by 35%. Part of the loss (about a third) was a result of DB writing off its investment in Actavis; the sale of which was announced yesterday. Awkward on the face of it. Link: Deutsche Bank announces quarterlies.
2. I'm enjoying watching the Catholic criticism of US House Budget Committee Chairman Paul Ryan. Mr Ryan has been lauding his catholic upbringing's influence on the current budget plan, which includes and/or consists mostly of federal cuts in aid to the poor. So fewer food stamps. Mr Ryan's position: stopping food stamps to the poor is in line with Catholic social doctrine, as best as he can make of it. The Catholic bishops? They got involved and called for a boycott in a not-very-separation-of-Church-and-State kind of way. I suppose Ryan started it. But nevertheless, I see Ryan's point. If a government supports the poor to the point of bankruptcy, that's not really long-term assistance now, is it? Personally, I just think that Paul Ryan's publicist said let's try and spin this to avoid all manner of hellish headlines. Firstly: fail. Secondly: damned if he did and damned if he didn't. Sounds awfully like old-time religion to me. Link: Catholic guilt trip.
3. Metlife, the US's largest life insurer, will no longer be granting reverse mortgages. I keep harping on about the repeal of the Glass-Steagal - but here is definitely another instance worth-mentioning it. A reverse-mortgage allows a pensioner to take a lump-sum out against their house - to be paid back in the event of their death by the sale of the house. In America - the land of the rapidly aging. HOW can you tell me that's not going to cause a rapid/rabid/rancid collapse in the housing market? If you gave me the option of taking out money against a piece of property that I'll never have to pay back (I'm sorry, but once I die, all bets are off), hell yes I'm going to do it. And all of my friends. And then we'll all grow old together under a Tuscan sun, happily buying medication on Obama, eventually passing peacefully into oblivion where we spend an eternity paying for our worldly extravagances together in purgatory. Meanwhile, back at the ranch, there's an insurer pulling out hair, because all he has is millions of ranches to sell and no one to buy them. Because his target market is either dead or disinherited. So yes, Metlife. Let's hope you stopped soon enough. Link: Insurer stops playing at banking.
4. Another Goldman Sachs employee is under investigation for insider-trading. He's apparently connected to Raj Rajaratnam. That said, "being connected" is key when you want to trade on the inside. I'm sure that Raj knew everyone. Link: The Rule of Raj.
5. The Fed has sold $7.5 billion worth of CDOs from the AIG rescue to Barclays and Deutsche Bank. The CDOs were linked to commercial mortgages - which I guess are better than residential ones; as commercial property is generally (and I do mean only "generally") better thought out than the home of the average American dreaming of living his American dream. Either way, the dream has a naively happy ending - the US Taxpayer makes a profit (selling the CDO book for more than the Treasury paid for it), and the banks get to make a profit (because they can play with it). Everybody wins. Link: The Return of the Beast.
6. Charles Taylor has been found guilty of Sierra Leone war crimes. It needed to be mentioned. Link: Taylor found guilty.
7. Premier Wen Jiabao announces that China is ready to offer $10 billion in infrastructure funding to Eastern and Central Europe. Link: China offers aid to Europe.
8. And the African Business News in brief. Link: ABN Briefs. The highlights:
• Ghana's fuel refinery has closed, after the government announced that it requires modifications before it can distill Ghanian oil. 
• Nigeria has sold 90 billion naira worth of debt paper at its regular auction. 
• Kenya's largest bank by assets, Kenya Commercial Bank, has reported a 35% increase in quarterly profits. 

That's all for now.

Have a good day.

Daily News Roundup 2012: Thursday 26 April

Good morning

The headlines:

1. America's Fed left its monetary policies unchanged today. It also indicated that it would do more if needed to help continue the recovery and ensure that inflation continues on target. Those two conflicting targets make for a great tagline. But that's about it really. An action-redundant phrasing of "when something happens, we'll do something; but we'd really like everyone to know that we're committed to doing something. My name is Ben Bernanke, and I'm a-addictaphone stuck on repeat". So largely, not very interesting. On the other hand, don't expect QE3 any time soon. Link: Bernanke says Fed prepared to do more if necessary.
2. Japan is expected to announce further asset purchases tomorrow. Otherwise, it will "sow confusion", according to a former Central Banker. But the part that I appreciated most was the comment on the Bank of Japan's impact on its currency. Which is none at all, really - in the long term. I guess that's the danger of being a giant exporter. Your economic health is intrinsically tied to that of your main customers; but it's not like you can go play with their monetary policy. Link: BOJ to take it easy.
3. Credit Suisse announces a 96% drop in profit. On the other hand, they still made a profit: which is better than what was expected. The profit drop is due to "accounting write-offs", according to CEO Brady Dougan. You know when people talk about "Big Bath Behaviour" (an attitude of let's get all the bad news out of the way now), I imagine that they have this type of announcement in mind. There were debt write-offs under Basel III requirements; the company repriced its own debt (as it's now more expensive for them to borrow in the market); there's been deleveraging and selling off of investment arms. Makes sense to me - the market is expecting poor financial results in the financial services industry. Part of me wants to buy shares in Credit Suisse. Link: Credit Suisse making 4% of what it made a year ago.
4. Watson Pharmaceuticals agrees to buy Actavis Group for $5.6 billion. The purchase gives Watson presence in Eastern Europe and Asia. Actavis makes a generic version of Ritalin; which was as far as I got before I ironically stopped paying attention. Link: A Generic Deal.
5. After six years, the US Housing Market is said to be bottoming out. Except that there is a host of foreclosures on the horizon, as some of those lawsuits against the banks (made by delinquent homeowners) have been recently settled... I recall a big brouhaha a few months ago about the states all signing this settlement agreement with the banks, which meant that the banks could go right ahead and restart seizing homes. Link: US Housing scrapes the barrel.
6. French Presidential front-runner Francois Hollande says he won't ratify the Euro fiscal pact, if elected. He keeps using the word "negotiation", but it sounds a lot like petulance. The crux: if France wants to stay in the euro (and it should - too late and too expensive to back out now), there needs to be some fiscal accord between the nations to keep the currency stable. Getting all upset about it now is short-sighted. Link: Hollande says no.
7. Coke announces its 11th Stock Split. But Mr Buffett is not a fan, as share splits make shares more liquid and easier to trade; and WB has warned in the past that splits can encourage short-term trading strategies which would be bad for the business. On the other hand, that came out of a Shareholders Letter that was written almost 30 years ago; and his son Howard voted in favour of the 2-to-1 split. Link: Coke and Buffett Split.
8. Despite a mad cow, Canada, Mexico, Japan and South Korea (the four biggest customers) will continue to buy US beef. The future(s market) rebounded as everyone calmed down. But actually, the process for keeping the mad cows out of the human consumption system is quite interesting. Canada is ambivalent because they were the source of the original mad cow in December 2003 (the last major scare), and they've had 19 cases since then. South Korea plans to do more checks. Japan still operates under the assumption that all US cows might be mad, so only imports beef that's come from young cows as cows over 20 years old are more at risk. But that sounds like a dud theory to me - surely 2 year old cows give the same amount of meat as a 20 year old ones? Why would anyone maintain them for that long then? I suppose that its the breeding cattle that could sneak in there. But frankly the chance of that small and infrequent set of carcasses being sent to Japan AND that they'll be sick is probably a lot lower than the chance that a young cow could uncharacteristically act like an old one and go mad. But maybe that's just me. Link: Cattle Futures Rebound.
9. Iran may halt its nuclear program over sanctions. But the source of that comment is the Iranian envoy to Moscow. America has raised an eyebrow and suggested that the world listen to the key negotiators and not some envoy from Moscow. Link: EU trade embargo on Iranian Oil may be working.
10. And the African Business News in brief. Link: ABN Briefs. The highlights:
• Namibia keeps its key lending rate constant at 6%.
• Malawi's maize crop expected to fall by 7% this year. But more interestingly, new President Joyce Banda has fired the Central Bank governor in her latest round of house-cleaning.
• Nigeria's United Bank for Africa is seeking to merge its Zambian unit with another local lender in order to meet minimum capital requirements; after the Zambian Government increased capital requirements for foreign banks from around $2.31 million to $100 million.

That's all for now.

Have a good day.

Daily News Roundup 2012: Wednesday 25 April

Good morning

The headlines:

1. Nomura Holdings, Japan's largest brokerage, is expected to announce an increase in quarterly earnings. This is in spite of declines in investment banking - which initially surprised me, because brokerage houses don't usually double as investment bankers. But then I recalled (via Bloomberg, Google and Wikipedia) that Nomura purchased Lehman Brothers' investment banking and equities units in Asia and Europe after Lehman's infamous exit from Wall Street. Anyway, the increase in earnings is interesting because Nomura is beating the US banks (who can't all report increases in quarterly earnings), and because a month ago, Moody's downrated the company to the lowest investment grade rating. Link: Nomura said to post quarterly gain.
2. Chancellor Merkel has reaffirmed her position that balanced budgets are her best answer to the debt crisis. This seems to be in response to French Presidential front-runner and socialist Francois Hollande's opposition to austerity. And his statement yesterday about the ECB and what it ought be doing to stimulate growth. Merkel's home-grown logic of "you can't spend more than you take in - you just can't" sounds reasonable; unless, of course, you're the druggie nephew in a rich family - in which case, you just do what you like. And that's still the trouble, isn't it? The weaker states are learning to be reliant, not self-reliant. So austerity is Big Momma's way of teaching the kiddies to shape up or ship out; which works so long as the children are convinced that they need Mom more than Mom needs them. But eventually, those rebellious thoughts creep in - and then Mother's life gets real difficult real fast. Link: Merkel tells Hollande to calm down.
3. Apple news:
• Apple has been found to have violated a patent. Something about Motorola and 3G technology. The real question is: what does it all mean? In theory, it could lead to the US banning the import of the affected devices (iPhones and iPads). However, this was only one judge's ruling. The decision now needs to be reviewed by a 6 person panel, who will decide on a punishment. And if they decide on an imports ban, then it goes to an appeals court that deals in patents, and then to President Obama. Politics and big business. You know, we all talk about Big Oil and Big Pharma and Big Banks. I'd like to hear what they call the Big Internet Start-ups/Technology people (like Apple and Google). You'll know they're big when your average americans start suing them for causing cancer, and Julia Roberts stars in a movie about it. Link: Motorola wins partial ruling.
• Apple's quarterly profits have almost doubled. As a result of awesome iPhone sales and the new iPad. Win. Link: Apple's profit up by 94%.
4. Facebook news:
• Facebook's quarterly profits have dropped by 12%. It's blaming slow sales growth and rising costs of marketing. Not what you want ahead of an IPO. Link: Facebook fail: unlike.
5. Mitt Romney has declared himself the winner in the US Republican Nominee race. Now that the Santorum vitriol has stopped, Obama can prepare himself for a steady commentary on failed economic policies. Link: First Rick, Now (Ba)Rack.
6. Cattle Futures are falling on the back of news that mad cow disease has been found in a Californian cow. Investors panic at this type of news. The cow that brought the meat industry to its knees... Madness. Link: California has a Mad Cow.
7. Anglo America has announced its agreement to sell Scaw South Africa (Pty) Ltd (a steelmaker) for $430 million. Link: Anglo sells Scaw.
8. And the African Business News in brief. Link: ABN Briefs. The highlights:
• The SARB's monthly economic sentiment indicator has increased in February. The South Africans are statistically experiencing more economic sentiment.
• Royal Dutch Shell has announced plans to buy Cove for 1.1 billion pounds. This would give Shell hydrocarbon operations in Kenya and Mozambique.
• Mozambique is set to buy 6 million gigajoules of gas from Sasol. And they're going to build a pipeline to transport it. "6 million gigajoules"? It sounds giant.

That's all for now.

Have a good day.

Daily News Roundup 2012: Tuesday 24 April

Good morning

The headlines:

1. To make an observation about a general trend, the peoples of Europe are making their opposition to austerity measures known. France has just delivered a defeat to Sarkozy in favour of Hollande (the observation that keeps being made is how Sarkozy is the first incumbent to not come first in a primary election ever); the Dutch government is falling apart, and the current PM, Mr Rutte, has just delivered the news to Queen Beatrix that she should dissolve parliament to make way for new elections; Silvio Berlusconi got thrown out of the Italian party-party; Papandreou got tossed by the Greeks, who seem to be in the mood to toss everyone else. Multiple governments have fallen. On the other hand, not Ms Merkel, who is championing the austerity cause. Of course, German austerity is a cultural cliche, so maybe it just comes natural. But sometimes I wonder if it's not a question of alternatives. Germans have a long memory, and inflation scarred deeply after both World Wars. Austerity may not lead to economic growth, but it certainly prevents the ravages of inflation. It sounds a lot like weight-control. This German obsession with crash-dieting, or this Euro-popular obsession with strong laxatives: well, it all just leads to unattractiveness and needing to be hospitalised. The key is a solid diet plan, some exercise and plenty of roughage for regular bowel movements. Link: European Austerity Backlash. 
2. Facebook has elected to list on the NASDAQ rather than the New York Stock Exchange. What difference does this make? Well, for those who may not be aware of it, the NASDAQ and the Dow Jones actually follow different exchange models. If I remember correctly, the NASDAQ operates through a system of market-makers ie. a buyer will not interact directly with a seller, but from a market-maker. The market-maker therefore acts as a go-between, and because of their placement at the center of the trade, negotiate better prices on both sides, and limit the bid-ask spread. The Dow J operates on an auction system, where buyers bid for the stock directly from sellers. Why this decision from Facebook? Part of me wants to say: because NASDAQ was the first stock exchange to start trading online... Link: Facebook to list on NASDAQ.
3. In other Facebook news, the company is spending some listing money in advance on AOL patents. From what I can tell, there has been a bit of an auction war ongoing for AOL patents - between Microsoft and Facebook. And yet, they both want different sets of patents from the same collection being sold. So Microsoft bought them, licenced them, and is now selling Facebook the licences to use the ones it wants. Facebook is said to be paying $550 million for the licences. I realise that I've been a bit harsh in the past about Facebook's reasons for listing - but I suppose that in the land of the virtual space, the holder of intellectual property is king. Maybe this is what they need all the IPO money for. Link: Facebook buys rights to intellectual property.
4. Murray and Roberts, South Africa's second largest construction company, has announced that its rights offer was three times oversubscribed. For those who don't know, there is often a dirty smell attached to rights offers: they're seen as signs of a company in distress. Which makes sense: if you need capital, going back to the original owners and asking for more money does smack of desperation. M&R are indeed struggling - they posted losses last year, and say that they're suffering from a slow-down in construction. It's true - South Africa may be slowing down - but then why aren't they participating in the infrastructure boom that seems to be gripping the rest of Africa? Maybe I've missed something - which is probably why the rights issue was so oversubscribed. Link:  Murray and Roberts have oversubscribed rights issue.
5. And the African Business News in brief. Link: ABN Briefs. The highlights:
• Chinese demand for West African crude is set to rise by 16% in May.
• Somaliland, the breakaway secessionist state from Somalia, has instituted a new law to formally create a Central Bank. Somaliland has not been recognized as an independent state internationally. But then, neither has Palestine.
• Meyer Kahn is stepping down as Executive Chairman of SAB Miller in July. The eventual successor is Alan Clark, but Graham Mackay will take over for an interim year-long period. 

That's all for now.

Have a good day.

Daily News Roundup 2012: Monday 23 April

Good morning

The headlines:

1. So the IMF is $480 billion richer this week. But it's short of the $600 billion that Christine Lagarde was hoping for (the US decided not to offer anything - wisely, as where would their money have come from?). In her speech, she used a great metaphor about needing an umbrella if the clouds (presumably Spain and Italy) break into a "nasty rain". Amused - because that sounds like both a metaphor and a euphemism. Some economists suggest that the IMF money would just buy those economies breathing space - "two years tops", being the general idea. But we need to be asking ourselves whether the objective in these scenarios is saving the country or preserving the order of the World's Financial System. Because I think that the answer is the second - the banking institutions need time to close out their positions and limit their exposure. With Greece that took about what - two years? Christine Lagarde (and the banks) - you win. At the same time, the funding came with some explicit conditions from the donating countries. Methinks that the emerging markets that were contributing have made some headway on gaining a bit more of a voting voice. Emerging markets - you win as well. Win-win situations - the financial unicorn. 
2. Sarkozy and Hollande are through to the next round of the French Presidential Elections. Hollande won 28.5% of the vote, with Sarkozy taking 27.1%. Extreme right candidate Marine Le Pen came third with 18.1% - and her voters are the expected swing vote. I watched communist-backed Jean-Luc Melenchon, who came fourth with 11.1%, call on all of his supporters to go and remove Sarkozy from power by voting in François Hollande. I then watching Hollande make a victory speech about his real opponent being the World of Finance. Frankly, on the face of it, I'd say that the French Banks are in for a tough time. But Hollande declaring a War on Finance is likely to earn Sarkozy a tsunami of election-funding from the rich. I just think that we must be real here. Elections are elections - but power is a purse-string.
3. ECB President Mario Draghi has rejected calls from the IMF and US Treasury Secretary Timothy Geithner for more monetary measures to solve the Eurozone Debt Crisis. Good man. Draghi and the other Euro bankers say that they have done enough by lowering interest rates and issuing the banks more long-term loans. Some would say more than enough - as those long-term loans, and the bond repurchase programs, already have long-term economic consequences that are yet to be fully realised. Either way, I think that the world forgets that independence of Central Banks is key to maintaining an economy. Without it, you have monetary authorities that have become fiscal authorities - which is the dangerous path to hyperinflation. And anyway, as Bundesbank President Jens Weidmann points out, "the problems in Europe can't be solved by monetary policy measures". Agreed. 

That's all for now.

Have a good Monday.

Daily News Roundup 2012: Friday 20 April

Good morning

The headlines:

1. The Spanish Bond Auction had high demand yesterday. Spain met all of its targets yesterday, with the subscriptions for 10-year bonds being almost double the amount sold. Agreed - the yields on the 10-year bonds were higher than the last sale of 10-years (February); but they didn't break the magical 6% limit that "most economists see as unsustainable" (the actual yield achieved was 5.743%). And yields on 2-years bonds were slightly lower than in February. What does it all mean? Possibly that the likelihood of default is still distant. Personally? While I think that default is a fun topic - I also think that the big institutions need to do something with the money that they're holding on to. After all, the bulk of the world's money supply is governed by policy mandates that designate the types of asset that can be bought, and in what proportion. Whatever else happens, every month, millions of people contribute to their pension, provident and retirement funds, and pay their medical, funeral, life and house insurers. What happens to that money? It falls into the hands of fund managers that need to earn returns with it. As per investment policy statements. Ergo: at the base level of finance, there is a seller's market. Link: Strong Demand and European Debt Auctions.
2. Analysts are expecting China to announce a third rate cut in the next few weeks. It's been a while since the government played around with bank reserve requirements. But according to a news announcement yesterday, the Chinese Central Bank remains committed to "targeted liquidity management actions". Sounds like a great euphemism to me. In theory, cutting the reserve requirement allows banks to issue more loans through "fractional banking". Fractional Banking (without reserves) means that a bank can lend money almost infinitely: a depositor places $100 with the bank, and the bank can then lend $100 to a borrower. The borrower then uses the $100 to pay for things; and his suppliers now have $100 that they bring to the bank and deposit; so the bank now lends $100 to someone else. And essentially, the same $100 can be turned into an infinite fortune of bank credit. Where there is a 40% reserve requirement, the bank must lodge 40% of deposits with the Central Bank, and can lend out the remaining. So with the original $100, the bank sends $40 to the Central Bank, and lends out $60. The borrower spends the $60, and his suppliers bring back and deposit $60 at the bank. The bank places $24 (40% of $60) at the Central Bank, and lends out a further $36. And so on, until the bank eventually has lent out around $150 off the original $100. If the reserve requirement is cut to 20%, this translates into $400 worth of loans off the original $100. So that's the plan. Link: China may cut Reserve Ratio.
3. And the African Business News in brief. Link: ABN Briefs. The highlights:
• Burundi's revenue collection has increased by 17% year-on-year, thanks to reforms meant to attract investment. It's ironic that higher tax collection attracts investment - but there we are.
• Lots of mining and oil companies are doing well (the summarised version).

That's all for now.

Have a good day.

Daily News Roundup 2012: Thursday 19 April

Good morning

It's going to be a short one. I'm in Cape Town today, which always makes it feel like I'm on holiday. The headlines:

1. After the Spanish Debt auction success of two days ago, I am happy to report that Asian Stocks have once again fallen in anticipation of today's Spanish and French debt auctions. Today, Spain hopes to raise 2.5 billion euros in 2-year and 10-year long term bonds. Clearly, after the over-subsbscription to the short-term stuff, the market is happy with Spain for the next 18 months. But 2 to 10 years? That'll be interesting. At the same time, France is hoping to raise a maximum of 11 billion euros. According to Bloomberg, their yields are up 10 basis points because investors are concerned that a socialist (Hollande) will win the French election, which frankly sounds like the financial equivalent of a split hair. Until I realised that someone failed to give a frame of reference, because French 10-year bond yields have gone up by 240 basis points in the last month or so. Which sounds like more of a <bad word> haircut. Spain and France Sell Bonds.
2. Blackberry owner RIM is about to pick JP Morgan as its financial advisor. RIM has had five straight quarters of sales shortfalls. Now I'm not sure whether that means that they've sold less than budgeted each quarter, or if they've sold less each quarter than the one before it. But either way, I see more iPhones and Samsungs every day. Link: Blackberry said to be near choosing financial advisor.
3. And the African Business News in brief. Link: ABN Briefs. The highlights:
• Standard Chartered is said to be planning on entering the markets of Senegal, Mozambique, Ethiopia and South Sudan. I'd like to see things happen in Ethiopia. It's one of the fastest growing economies in the world, but it has to have one of the most-closed financial systems. No foreign banks. At all. Legislation will have to change first.
• South Africa's CPI slowed to 6% year-on-year in March - so we're back within the SARB's ban.
• Kenya has cut its domestic borrowing target for the 2011/12 year by more than half. This is due to a $600 million syndicated loan that is due to be finalised before the end of the month.
• Engen has replaced Iran with Saudi Arabia on the crude import source front.

That's all for now.

Have a good day.

Daily News Roundup 2012: Wednesday 18 April

Good morning

The headlines:

1. Good news: the IMF has increased its global economic forecasts and Spain sold more debt than expected. And as I see most mornings, this has affected Asian Stock Markets (which makes sense - I do these posts first thing on a South African morning, so I get the Asian news). Spain's debt auction exceeded its maximum target of 3 billion euros, with bids of 3.18 billion euros being made. Link: Spain beats target. So the market seems to be pretty sure that a default in the short-term is unlikely. Nice.
2. And on the IMF front, the global forecast growth rate has been increased to 3.5%, up from 3.3% in January. Apparently, this is largely on the back of improvements in the US economy. My question: can you ever really trust US economic outlooks in an election year? My (borrowed) money is on short-term recovery tactics. Other than America, the IMF folk see less risk in the Eurozone than in January, and they don't see China having that "hard landing". Link: IMF Raises Global Forecast.
3. Berkshire-Hathaway has announced that Warren Buffett has been diagnosed with Stage 1 Prostate Cancer. The end. Link: Buffett has non-life-threatening prostate cancer.
4. Citigroup Investors have rejected a Compensation Plan for Executives. Apparently, the plan made getting bonuses too easy. The analogy being thrown around is "would you offer the manager of the New York Yankees an incentive bonus if he wins one-third of his games?" The correct answer is not "obviously not". If the whole of New York has been subject to a flu pandemic and your players have been constantly sick - maybe winning a third of the games is way impressive. It's all relative. On the other hand, Citigroup is being outstripped by the other banks (that's the way it sounds), and then there was that awkward Fed Stress Test fail. Link: Citigroup Shareholders give a nought for performance.
5. Japan is about to no longer be in deflation. That's according to Nomura Holdings. The story is that a strengthening yuan will increase China's buying power, fueling Japanese production and causing prices to rise. China is moving away from its export emphasis toward more focus on domestic consumption. Which makes a lot of sense - as the last few months have shown, the export focus makes the Chinese economy exposed to the vagaries of political policy in their customer countries. And from what I can tell, that's not something that the Chinese appreciate. In theory, heightened domestic consumption would result in a rise in imports, some of which would come from Japan. At the same time, a strengthening yuan would make Japan more internationally competitive. Link: Japan Poised for Inflation.
6. And the African Business News in brief. Link: ABN Briefs. The highlights:
• The Kenyan Government has cut its subsidies to Kenya's sole oil refinery in order to force efficiencies. At the same time, marketers now have the option of sourcing product externally.
• The IMF announced that growth in Sub-Saharan Africa is set to increase to around 5.4% as a result of new mineral and oil production and the increase of exports to countries outside of Europe.
• The African Union has suspended Guinea-Bissau after a military coup removed constitutional control two weeks before the second round of presidential elections. Do African armies just get overly excited at election time? First Mali, now Guinea-B. 

That's all for now.

Have a good day.

Daily News Roundup 2012: Tuesday 17 April

Good morning

The headlines:

1. The next Spanish Debt auction is happening today, where the Spanish Government will sell 12 month and 18 month treasury bills. Yesterday, yields of Spanish 10-year bonds rose to 6.16%. The concern is that 7% was the barrier at which Greece, Ireland and Portugal all sought bailouts. But that's on long-term debt. What will be interesting is the yields achieved on the short-term debt - which will give an indication of the market's opinion as to how likely a Spanish default would be in the next 12 to 18 months. The higher the yield, the greater the risk associated with the debt. And we'll just infer that the risk assessment is the risk of default. The other test will be the cost of buying default protection on these treasury bills. That said, the Eurozone took a really long time to let Greece default. On the face of it, a Spanish default in the short-term has too many powerful negatives for it to be a real likelihood. We shall see. Link: Euro weakens ahead of Spanish Debt Auction.
2. The US Senate has blocked the Buffett Tax rule. The bill would have imposed a minimum tax rate on households earning adjusted gross income of more than $2 million a year. Obama scolded the Republicans for rejecting this "common sense" measure. But I do wonder how much of it is common sense, and how much of it is something to do with the 6 out of 10 voters being a fan. Common sense would imply that there is a substantial contribution to be found here. The figure floating around is $47 billion over the next decade (purely from the tax rule - the figure is higher if you include the increase from not extending the tax breaks that expire at the end of 2012). So $4.7 billion a year. Mitt Romney is throwing around accusations that this will fund "11 hours of government". So I went to www.usgovernmentspending.com, which estimates that Federal fiscal spending for 2011 at $3.6 trillion (I believe that State and Local spending are funded at a State and Local level). Assuming a 52 week year, working five days a week, for eight hours a day: I make that a funding of about 3 hours of government. Mr Romney must have been including the "not-extending the tax" breaks part. Because yes, that's an increase of $162 billion; which makes it about 10 hours. Link: Senate sees Cents.
3. Apple's stock is declining. Up to now, analysts have been debating whether it would break the $1,000 mark (it's floating around $580 at the moment). The decrease is being ascribed to waning demand for the iPad 3, and removal of subsidies on iPhones. With all due respect to the iPad 3, I'm just not convinced that I should be upgrading. I'm used to being awed - higher resolution and faster processors, whilst awesome, are not for amateurs. We like the cool stuff. Stop with the 3G and 4G - you're changing the wrong thing - we want 3D. And iPad Siri! Come now. As for the subsidies - telecom providers are making noise about charging for upgrades (makes sense to me - if consumers will pay for the phone, why not take advantage?). On the other hand, maybe everyone is starting to wonder if the Apple share price is just inflated by over-enthusiasm. Link: Apple Falls for Fifth Day.
4. Jim Yong Kim will be the next president of the World Bank. See: And the Oscar Goes To...
5. Zimbabwe's Ministry of Mining has ordered 469 local and foreign miners to resubmit applications for their exploration rights. The news has taken everyone by surprise, particularly the foreign miners (AngloAmerican, Impala Platinum, etc). I'm not entirely sure why though - I mean yes, it's generally surprising. But not really unpredictable. Zimbabwe is not exactly famous for its respect of property rights. And here is a government that has lost its primary source of income (printing money), sitting on a mineral wealth that includes some of the largest platinum reserves in the world. The logical step is a short one. Particularly when Impala Platinum waltzes around trying to avoid empowerment laws; which is the political equivalent of poking a very-much-awake dragon in its sore eye with a burning brand. Lest anyone forget, the 2000 farm invasions began three days after the government lost a referendum on a new Constitution, following a campaign against it spear-headed by white commercial farmers. That same government? Still in power. Watch this space. Link: Zimbabwe Orders Miners to Resubmit Exploration Rights Applications.
6. And the African Business News in brief. Link: ABN Briefs. The highlight:
• SABMiller plans to invest $2.5 billion in Africa over the next five year. The money will be spent on building and revamping breweries. Hurrah for beer.

That's all for now.

Have a good day.

World Bank President: The Oscar goes to...

And the nominees are:

• Jim Yong Kim - a US National and President of Dartmouth College, New Hampshire
• José Antonio Ocampo - a Colombian National and Professor at Columbia University, New York
• Ngozi Okonjo-Iweala - a Nigerian National and Coordinating Minister of the Economy and Minister of Finance, Nigeria.

It certainly sounds a bit worldly, does it not? Very politically correct: African. Asian-American. Colombian Columbia Professor (the Universe and her humour). Black. Asian. Hispanic. Two men. One woman. Almost an entirely representative set of landmasses, other than Europe and Australia. But in all fairness, Europe has Christine Lagarde; and Australia has mostly European convictions.

On a political point, the emerging and developing economies were desperate to have a head of the World Bank that isn't American. Indeed, to that end, Ocampo withdrew his candidacy and threw his hat in favour of the Good Lady from Nigeria. Although, that said, if you read his translated-into-English statement, the issue seems to be more of this game is political; I don't have political support; Dominican Republic thanks for trying; damn you Colombia for not; this process is not merit-based; if it were <heavy unspoken implication>; Ngozi, rather you than my Dartmouth rival.

And then there were only two candidates in the running. I find myself asking the following question:

• What difference does it make?

Which leads me to an even more pertinent question:

• What exactly does the World Bank do anyway?

The World Bank


So the World Bank started back at Bretton Woods in 1944, where the Americans and the Brits had a fantastic sound-off as to how the World would run after the War (ever the planners, they started planning before the War was over - clearly, self-doubt was not an issue). Interestingly, the two key players in this debate were Harry Dexter White (the US-side economist) and John Maynard Keynes (the UK-side economist). And for the most part, Harry Dexter White won - a great many of Keynes' ideas were never implemented and/or were side-lined. For example, Keynes was all for the establishment of a world currency unit (the "bancor") that would function as an independent currency of reserve. White was in favour of the US dollar functioning as the world's reserve currency.

White 1: Keynes 0.

But that aside, the IMF and the World Bank (or just the International Bank for Reconstruction and Development, as it was then) were set up to be the bankers to nations in the years post 1944. Which made a lot of sense – most countries had just experienced the ravages of two World Wars. Defence had been expensive; the large part of the working force was either dead or returning from years of war in need of education and reintegration; many industries had been subverted into war-driven products and were lacking the infrastructure of the years of peace; cities had been bombed and were in need of repairs; world trade had been heavily stifled by war politics; most governments were new and lacking the strength to drive through recovery policies; and reparation payments needed to be negotiated and wrung out of soon-to-be-freshly-defeated nations that had little hope of meeting their obligations.

Solution (in part): the World Bank. “You come to us for loans to rebuild, we’ll give them to you; and in about 50 years time, an artist called Bono with an extraordinarily large collection of sunglasses will run around asking us to forgive the debts of those that haven’t managed to pay them back”.

Solution (another part): the IMF. “You come to us for short-term loans when you can’t maintain your exchange rate/balance of payments; and we’ll tell you how to do it better. Agree to do it like we said, and we’ll give you the money”.

So in effect, the IMF was all about short-term financing; and the World Bank was all about long-term financing. Approximately.

And to clear up something (before I get a host of comments), the "World Bank" is now a collective term referring to the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The IDA was formally established in 1960 to offer loans to the really poor countries on the most favourable terms possible. Whilst the two are run in the same way, and share the same headquarters and leadership, the funds that finance the two entities are kept separate. And unsurprisingly, the IDA's fund needs to be replenished more often.

The Criticism

So why do so many people protest against the World Bank? The trouble is that the capitalist reforms that the World Bank insists upon in return for their loans for structural adjustment (ie. for investment in industry, infrastructure, etc) are not always best for their borrowers. For a number of reasons:

1. Countries are not always ready for free market forces immediately. For example, if a country is forced to de-nationalise a parastatal like a Water Authority, the entity in its original form is probably quite inefficient, and unlikely to be self-reliant. Forcing self-reliance could cause the industry to collapse long before the free market forces have enough time to step in and fill the gap. And then there would be a water crisis.
2. Structural adjustment requires a natural order of events. Before factories can be put in place to process agricultural products, the farms have to be put in order. In order for the farms to be put in order, there need to be improvements to the transport system (to carry the product) and to the water system (to irrigate the newly planted crops). Then there is the need for sufficient power supply to govern all of that. The point that I'm trying to make is that the process requires some forethought, and probably some experience in rebuilding economies - structural investment without forethought is, at best, unhelpful. 
3. At the same time, structural adjustment in weak economies can create unhealthy free market structures (such as monopolies), which do more damage than good. 
4. And, for that matter, structural adjustment in weak economies can draw attention to a key incentive imbalance. If a leader that has previously been repressed suddenly attains power, how likely is it that they would be able to resist abusing it? Particularly if that person were unsure of how long they could maintain their position. I think that the human reaction would involve being a lot more interested in self-preservation and/or self-enrichment than in the improvement/enrichment of the economy. Add to this a sudden influx of foreign funds? Hmmm.

I'm all for the eradication of poverty. But the action to be taken, and the implementation thereof, requires a strong and experienced hand. This leads to the main criticism of the World Bank - that its voting system and governance is heavily biased in favour of the donors (ie. the US and the economically powerful). And the point is a fair one - how can a World Bank, controlled by the economically-successful, advise on the development of the economically-awkward? Does their success make them the best decision-makers?

I reckon that's the logic that's been applied until now - it's their money and they should make the decisions. But I really wonder if it continues to apply. Success breeds sophistication - can first-world born-and-bred politicians, with their subtleties of social acceptability, technology, sophisticated finance and medical aid really understand developing countries? Countries where paying your taxes is a lot less certain than death, and choosing a brand, flavour and fat content of yogurt is as foreign a concept as teleportation? These are different worlds. This is no longer 1944. Not everyone is still developing.

And the developing world has pointed this out. If you want to aid development, give the money to the person with the best chance of actioning that original goal. Enter a World Bank Presidency bid with more than one legitimate candidate. So which candidate should get it? We're down to two: 

Nominee Number 1: Jim Yong Kim

The US candidate without the economic background. He is a man of medicine; and his CV includes a long list of successful health programs that have been implemented in a great many developing countries. 

What I like:

• His lack of official economic background. And by this, what I mean is that he's probably going to be quite practical. Here is a man that has set up health programs in developing countries. I mean - I'm not sure how involved he was. But if he was as involved as everyone assumes, that means that he got his hands dirty. He dealt with issues and dealt with people and made things happen. In my mind - economics is just the study of human behaviour on both an individual and a collective level. Do we really think that a physician is going to be any less understanding of human behaviour than a formally-trained economist? Frankly, if the recently-late former-President of Malawi, Mr Mutharika (who used to be World Bank economist) is anything to go by - thanks, but I'll take the good doctor.
• His attitude toward economic growth (he was accused of being anti-growth). Read a little closer, and you'll see that the book generating the criticism was actually against economic growth purely for the sake of economic growth. The argument is that economic growth needs to be sustainable, and it needs to have purpose. Not all growth is like that. For example, economic growth that leads to every person owning two cars because they can afford to have one - is that really useful? Does that make the growth in the car manufacturing industry sustainable? I agree with the book - too much growth is potentially cancerous. I would hope that is Kim's view too.

What I dislike:

• He's not Ngozi. It's an African bias - I freely confess it. But other than that - I tend to like most of the things that his critics dislike. 

Nominee Number 2: Ngozi Okonjo-Iweala

The Nigerian Minister of Finance with the extensive academic background and the extensive economic experience.

What I like:

• Her economic background. She is well-established in the field, and has achieved significant economic reform in Nigeria.
• Her principles. From what I can tell, when she disagreed with Nigerian President Obasanjo in 2006, and he removed her from an economic team that she was heading up, she resigned immediately and joined the World Bank as a managing director. She also voted to abolish the fuel subsidies in Nigeria (the fuel subsidy cost is a significant drain on Nigeria's finances). I like those positions. The second, in particular, was not populist: and she was not popular when she made that call.
• Her continent of origin. Africa is, in many ways, the least developed continent. Ngozi has firsthand successful experience in swimming those waters, and must be aware of the corruption at play. If she can navigate it successfully - that's a quality that Kim will be unable to replicate. 

What I dislike:

• Her continent of origin. Has she been touched by the corruption at play? There are definitely some scandals floating around her name. 

And the winner is:

Jim Yong Kim. Because they announced it 10 minutes ago.

Should he have won?

The question is irrelevant - he was always going to. 

But I do not believe that all is lost. 

The doctor is in the house.

Daily News Roundup 2012: Monday 16 April

Good morning

The headlines:

1. North Korea's Kim Jong Un says that his country won't be blackmailed. He was dressed in black at the time (a military parade) - which I found slightly ironic. I'm not sure why he's worried about being blackmailed - last week's rocket launch was as epic as a fail gets - and Asian Stock Markets were positively rebounding at the news. On the flipside - the loss of face may cause an attempt to regain it. Hence the underlying threat that nuclear testing will take place. It sounds  evil-disney-villain you dare to laugh at me...I WILL DESTROY YOU. Link: The Continuation of Kim.
2. Temasek Holdings is buying part of Goldman Sach's stake in Industrial and Commercial Bank of China (ICBC). My interesting point of information: ICBC owns 20% of Standard Bank. Temasek is a Singapore state-owned Investment Group. The selling price is said to be around $2.5 billion, and will give Temasek a 5% interest in ICBC. From what I can tell, this leaves GS with an 8% holding. Link: ICBC Sale.
3. Google is being fined by the Federal Communications Commission for impeding an inquiry into its data collection practices. The fine is $25,000. I'm mentioning it because I think that it's funny that it's news. Link: Google gets maximum fine.
4. China has changed its daily trading band from 0.5% to 1%. While China has a fixed exchange rate regime, it does allow daily fluctuations in the rate within a narrow band. The limit has been sitting at 0.5% since May 2007. I'm just not sure what difference this will make. It's been suggested that a more flexible yuan will help the Central Bank to control inflation - although I'm confused as to how (maybe a weaker yuan will make exports more expensive, causing an economic slowdown and thereby decrease inflation? Surely not a key objective...). The other suggestion is that it's a token move to mute criticism from the world for keeping the yuan weak in order to maintain export competitiveness artificially. That also doesn't sound right - if China hasn't cared until this point, why change it now? I have no answers. Link: China widens band.
5. And the African Business News in brief. Link: ABN Briefs. The highlights:
• South Sudan says it will withdraw its troops from the Heglig oilfield if the UN sends neutral forces into the area. The oilfield is at the centre of tensions between Sudan and South Sudan.
• Zimbabwe's maize crop is going to drop by a quarter this year, after "a prolonged dry spell". Frankly, I think that the reason given is a rubbish one. I've just come back from Zimbabwe, and "enough rain" is one problem that they don't seem to have. 
• Another pipeline in Nigeria has been attacked.
• British oil firm Tullow Oil has rejected accusations that it was involved in the bribing of government officials in Uganda. It says that the documents proving the allegation were forged. 

That's all for now.

Have a good day.

Daily News Roundup 2012: Friday 13 April

Good morning

The headlines:

1. The European Central Bank is to restart its controversial government bond purchases rather than offering banks more financing. I copied the Bloomberg title, because I was at first confused - is it controversial for them to be buying government bonds, or are they only buying the bonds of controversial governments? I think that the answer is "both". The Germans are not happy. But the alternative of "Longer Term Refinancing Operations", or LTROs, which saw the ECB roll out a trillion euros worth of 3 year loans to banks last month, seems to be a fail. The yields are back up on Spanish and Italian bonds, and "tensions are rising". I'm not sure why the Germans are too upset just yet - last I saw, no one enacted a CAC on the ECB... Link: ECB favours bond buying.
2. There is a new name to watch in the JPM Voldemort story: Achilles Macris. It seems that Mr Macris was the man behind the Bruno Iksil trading strategy. We're running out of Harry Potter characters. Sauron? Link: JPM said to transform treasury to prop trading bets.
3. Apple has denied allegations of price-fixing. But still probably guilty of trying to remove Amazon as a competitor. I guess that the message is "Do it well, but not too well". But to be honest, I still don't entirely understand. If Apple is acting as an agent for the publishers, then so long as there is reasonable competition between them, surely it's all good from a consumer perspective? Ah well. And forgive me - I was trying to type this last news item from an SAA aircabin, but apparently that's not allowed when the flight is ON THE GROUND!! Hence the absence of a link. I shall update later... 
4. And the African Business News in brief. Link: ABN Briefs. The highlights:
• South Africa's gold production fell by 11.5% in February. 
• Impala Platinum has been charged with culpable homicide following a fatality at one of its mines five years ago. Not a great year for Implats.
• Ghana's government has banned public institutions from spending plans that were not included in the 2012 budget.

That's all for now.

Have a good day.

Bruno Iksil: the Volkermort of JPMogwarts

Bruno Iksil: he rules from the shadows.

So for those who haven't been following, the recent story shaking the Bloomberg Buzzworld is that of the JPMorgan credit derivatives trader with enough capital to break indices. Other traders are upset and calling him names. Names like "He Who Must Not Be Named" and "the London Whale". And probably more conventional ones like "bastard" and "that irritating mother-f***er with the mother-f**k of a capital base".

As a non-investor in credit-derivative indices, I get to use names like "Hero" and "Legend". But out of envy and a little disdain, I'm going to keep using "Voldemort". Partly because Voldemort was a big bully with some panache, but mostly because his large amounts of inbuilt power were the result of (ma)genetics and the size of his wand. If you have the entire resources of the internal capital base of JPMorgan at your disposal, you get to be the big boy on a small playground when you start throwing your weight around.

To be upfront, I'm letting everyone know that I'm going to engage in a little rinse-and-repeat from some of my earlier news posts.

So what is breaking an index?


Well most people have some memory of George Soros breaking the British Pound. And what that meant is that George Soros' Fund had enough capital to break the fixed exchange rate regime at the time. A fixed exchange rate regime combined with no capital controls effectively meant that the Bank of England was willing to sell and buy as much currency as sought by any counter-party, all at the same rate. However, the fundamentals at the time had Britain sitting with low interest rates and high inflation, while still attempting to maintain its fixed rate under the European ERM (Exchange Rate Mechanism). Fundamental fail, is what is. 


Enter George.


Enough capital to buy such vast quantities of pounds that when he eventually dumped them on the market, the BoE couldn't meet the other side of the transaction and was forced to float the currency. Followed immediately by a sudden and dramatic devaluation (the so-called breaking of the pound). 


Indeed, capital controls at Reserve Banks in many (if not all) developing countries are there to prevent exactly that. 


And the theoretical principle with Mr Iksil is nearly the same. Enough purchasing power that when he makes a trade move, things happen. 


And what is a broken credit index? Well - the credit index is meant to represent a basket of investments in credit default swaps held over various companies. In theory, we could replicate the index by buying those underlying CDS instruments. And this is quite a useful tool. Because if we price the underlying investments, and we see that they are not equal to the index: we would then sell the more highly priced option and buy the cheap one, bidding up the price of the undervalued side of the transaction, and lowering the price on the overvalued side by increasing its supply on the market. In other words, under efficient market conditions, this temporary mis-pricing self-regulates as investors trade under the expectation of price reversion.


However, when a trader can dramatically change the price of the index just by trading it, the index stops replicating its underlying investments indefinitely. Why? As the story goes: because Iksil can take such large positions, and is not liquidating them, there is not enough supply for the reversion to take place. 


And the Volker Rule?


The reason that this is such a fun topic at the moment is the much controversy around the Volker Rule (which sounds like the joke name from a Ben Stiller movie about meeting the parents). The Volker Rule is the part of the Dodd-Frank Act that everybank is protesting. The key points:

• The Volker Rule is going to regulate the risks that a bank can take with its own money (ie. its capital).
• The reason for the rule is the merging of Commercial and Investment Banking activities since the repeal of the Glass-Steagal Act.
• The merging of the two arms of banking means that the "traditional" banks of loan and deposit are exposed to the much riskier activities of Investment Banks. 
• This puts the layman's money at risk. Scratch that. This puts your average American voter's money at risk. At least - that's the theory and the political party-line.
• More likely: after the subprime mortgage crisis and the big bail-outs of the banks, there was pressure on the legislators to do something. And the Dodd-Frank Act was that something. And then someone noticed the incentive mis-alignment between the two types of banking and said "let's regulate that and we'll name it after Mr Volker". 
• But sadly, however much weight is thrown around in the area of Iranian sanctions, America can only really regulate the capital activities of American Banks.
• The foreign banks based in London and Switzerland and Germany and Tokyo and Shanghai and such are just going to calmly continue as they did before. Which makes the Goldman and the JPM throw around terms like "internationally competitive" and "we need to be".
• So now the legislators are confused as to what they want. But the bank lobbyists - they are not. 

And then along comes this kind of scandal, where JPM is playing around with its own money and breaking things. This incites the liberals and makes for bad press. Or is it good press? There are a couple of theories floating around out there as to where this story is coming from:

1. The jealous hedge fund managers: who are upset and embittered because the markets are not working the way they expected when they made their trades; or
2. JPMorgan itself: showing the world that it can and will do what it wants with its own money, through its London Chief Investment Office (I'm not sure if I entirely understand the theory of this point, but I refer to my favourite blogger, M. Levine, who wants to know why we say Voldemort like it's a bad thing).

Either way, the point of the Chief Investment Office is to hedge risk and invest excess cash. I think everyone is concerned because the firm's investments are around $350 billion, and wagers on this particular index are sitting at around $145 billion. According to Bloomberg, who have this figure according to market participants, who have this figure according to their observations of trade patterns and such, Iksil has built up a position that may be as large as $100 billion. In a single index: the Markit CDX North America Investment Grade Series 9 (IBOXUG09). 

The trade involves selling long-term default protection (ie. expiring in 2017) and buying short-term default protection (expiring in the next 8 months). Basically, the strategy implies a bet on defaults happening sooner rather than later. JPMorgan then earns the difference in spread (around 47 basis points as of early April). There is some controversy around whether that even makes sense - after taking into account transaction costs and such. Again, refer to Mr Levine's article (link above). 

However you look at it though, the reality is probably more complex than "this serves as a great example of why the Volker rule is needed" or "this serves as a great example of why the Volker rule is irrelevant".

Because let's be honest - no one really knows what's going on. There's lots of hype and speculation and great name-calling. Politicians have reacted by making many statements punctuated with "effects on the US Economy" and "effects on the US taxpayer". 

And poor Bruno is sitting in his London office going "WTF, dude? I was all getting-my-morning-starbucks and missing-my-girlfriend when *wham* - my sh*t hit the Bloomberg fans".

Awkward.

Daily News Roundup 2012: Thursday 12 April

Good morning

The headlines:

1. The US Government has sued Apple (and five publishing houses) for ebook price-fixing. Apparently, they all worked together to eliminate competition amongst stores (ie. Amazon) selling ebooks, ultimately increasing prices to shareholders (and decreasing profits for Amazon). On a personal note, and as a frequent customer of the iBooks store, I have noticed that the price of ebooks has more or less returned to those that I'd pay for a new printed copy (it was not always that way). But maybe I've just bought the story (pun intended) that the bulk of a book's cost is not in the paper and binding. Honestly, I think that the real loser in all this is Amazon, who dominated the ebook market before Apple started its "agency model". Nutshell: Amazon used to buy the books wholesale, and then sell them on at a markup; Apple now sells the books as an agent for the publishers, and takes a cut. Does that sound less competitive? It certainly sounds more intelligent... Link: US Sues Apple for Ebook Pricing.
2. The World Bank has cut its forecast on China's growth. Note that this means that the World Bank still expects growth, just less of it. The forecast has fallen from 8.4% to 8.2%, which doesn't sound like much - but China is the second largest economy in the world. A 0.2% drop in their growth could be the equivalent of, say, the economy of Ghana. "World Bank cuts growth forecast; World loses medium-sized African nation". The World Bank's solution: the Chinese government should increase fiscal spending to spur consumption, and bank reserve requirement should be lowered (again) to ease credit. It all sounds very conventional - but does anyone worry that the correct word here is more "spurious" than "spur"? The solution is fiscal spending (how will they finance it?) and more credit? Does any of that sound sustainable? Link: World Bank forecasts China.
3. In other Chinese news, the fall of Bo Xilai continues in spectacular style. The former Minister of Commerce, and until recently the Communist Party of China (CPC) Chongqing Committee Secretary (AKA - the leader), his fall comes ahead of the once-in-a-decade leadership change (elections/appointments for the nine-member Politburo Standing Committee, China's highest ruling council, are happening in a couple of months). He was a lead candidate for promotion, until some police chief in Chongqing sought refuge in a consulate for some reason. This lost Bo his position (?). Now his wife has been accused of murdering a British businessman (the term used is "highly suspected"), with her charges being read out on China's central television station every hour on the hour. The CPC is going media-crazy in calling for Bo's investigation (but isn't this his wife?), announcing that "Bo has seriously violated the Party discipline, causing damage to the cause and the image of the Party and state". I'm in awe of the Chinese political machine. Link: Boo hoo, Bo who?.
4. Christopher Dodd, Chairman of the Motion Picture Association of America, has announced that SOPA is dead, in his view. The Stop Online Piracy Act was shelved by Congress in January after the Google and Wikipedia-led protest against it (I have fond memories of a #FactsWithoutWikipedia trend on twitter that day). The Motion Picture Association had lobbied heavily in favour of the bill, but Dodd admits that it probably went further than it should have. According to Bloomberg, under SOPA, the US Department of Justice would have been able to obtain court orders forcing Internet-service providers, search engines, payment processors and online ad networks to block non-US sites linked to selling counterfeit goods. Which seems strange - because my understanding is that SOPA would have meant no more music videos on Youtube. Either way, I think we won. Link: Web Piracy Bills are Dead.
5. And continuing yesterday's story on the South China Sea, Philippines President Benigno Aquino says that he is seeing a diplomatic solution to the stand-off with China. I'm sure he is. Look at what they happened to Bo! But China has issued their side of the story. Yesterday, the Philippines said that the Chinese ships had stopped them arresting illegal fisherman. China has now said that the Philippines folk had illegally blocked the passage of ships seeking shelter from bad weather. Although it seems that the fisherman were seeking shelter for three days, because they were first spotted on April 8. And the diplomatic incident took place on April 10. Link: Philippines seeks peaceful end. 
6. And the African Business News in brief. Link: ABN Briefs. The highlight:
• Sudan has stopped all talks with South Sudan after new fighting on their border. South Sudan says it was acting in self defence. 

That's all for now.

Have a good day.

Daily News Roundup 2012: Wednesday 11 April

Good morning

The headlines:

1. I guess the big news of the day is that Rick Santorum has suspended his nomination for the Republican Presidential candidate. I love the way that Americans use the word "suspend" like somehow he can change his mind if he'd like. Uh no. Either way - I'm a liberal at heart in everything except abortion and tax rules (I make no apologies), so I'm delighted. Although I suppose that this now means that Mr Romney will look for a running mate who'll stand for all the conservative social issues. That said: I'd vote for anyone who realises that the social debate pales in comparison to the fiscal crisis faced by the US. I guess that means I'd vote for Ron Paul. Geezlike. Link: The Santorum Suspension.
2. Also, it seems that the world didn't buy Spain's 10 billion euros of efficiencies in healthcare and education. Literally. Spanish yields on 10-year benchmark bonds increased by 20 basis points yesterday. And you know the story - an increase in yields means that the price of the bond has come down, which means that people are either selling more or only willing to buy at a lower price, which is a sign of the market seeing the bonds as more risky, so on, so forth, etc. But I agree with the market's point (I think). Without the austerity measures, Spain is at risk of needing a bailout. With austerity measures, Spain is going to economically slow down, and may still need a bailout. Either way: risk. Link: Spanish Bond Yields Rise.
3. The Philippines have said that they're in a stand-off with Chinese ships in the South China Sea. The details involve illegal fisherman in the Philippine economic zone, Chinese surveillance ships preventing an arrest, and the summoning of an envoy to Manila to explain itself - but the details aren't really that important. I'm mentioning it because I think that it's so interesting. Every couple of months, you hear of another incident where China is antagonising another-country-whose-name-I-can't-spell over territory in the South China Sea. Which is a hot-bed of oil. And also hotly disputed. From what I can tell, China considers "Philippine Economic Zone" to be nothing but a naming convention for an area of its sea. After all, proximity to the Philippines is as good a reason as any for a name. Link: The South China Sea Stand-off.
4. And the African Business News in brief. Link: ABN Briefs. The highlights:
• Zimbabwe Agriculture Minister Joseph Made has announced that Zimbabwe plans to nearly double its wheat production this year to 75,000 tonnes. Umm. How? "Low-interest loans". Umm. With what now? 
• Malawi's finance minister expects international aid to the country to be restored under the new president, Joyce Banda. As do we all.
• Transnet is looking to raise R86.5 billion from debt markets to finance its capital infrastructure expansion plans.
• Randgold has "welcomed" the political settlement in Mali, the site of two thirds of its gold-mining operations.
• Zimbabwe has accepted the Anglo American Platinum's plan for indigenisation. So this is where the wheat money is coming from. And election cash. 

That's all for now.

Have a good day.