Daily News Roundup 2012: Wednesday 23 May

Good morning

The headlines:

1. Facebook analysts that shunned the crowd now look like heroes. Link: That's one way of putting it. The other is: "And/or the herd look like idiots". The stock is down to $31. 
2. And a Facebook investor is suing Nasdaq over delays in the offering. Link: Obviously. But - if you didn't manage to buy the stock at $42, and you bought it at $31 yesterday, then surely Nasdaq should be suing you for unjustified enrichment?
3. And Morgan Stanley says it played by the rules. Link: Even more obviously. The losers are all "you didn't put everything in the prospectus" and "you shouldn't have made us buy it at such a high price". The regulators are all "this is a concern for us". My thought is: "if Morgan Stanley managed to get that price for an IPO on a company that lost the support of General Motor's two days before the IPO and has been reporting lower advertising revenues because of people using their cellphones more - then I want Morgan Stanley to do my IPO - coz it sounds like they did their job to perfection".
4. JP Morgan losses become a tool for regulatory debate in Washington. Link: Also obviously. It really does seem like a day of stating the obvious. Big losses and big headlines are going to attract politicians like flies to a sceptic tank (pun intended). The question is whether the Volker Rule would have stopped this from happening? The answer, from what I can understand, is "no". JPM was theoretically hedging its risk exposures - not trading for its own account. It's the second that everyone is concerned about. As to how JPM managed to make such giant losses on a hedge (I mean - "making losses" is what they're meant to be hedging against...) - that I don't know.
5. SAP buys Ariba. Link: Ariba ariba, andele andele. Ariba is being valued at $45 a share, and the deal is worth $4.3 billion. Ariba is an online-trading platform for businesses - so SAP is reaching for the clouds. For those who didn't know, there is a race going on between SAP and Oracle (the business information system big boys). It may sound boring - but I'd think about putting my money in one of them. Why? One thing you can be sure of: there will always be transactions because people will always need things; where there are transactions, there are businesses because businesses will always adapt; and where there are businesses, there is always a need to account. In boom times, new businesses grow and old businesses expand - they'll need to update and revise and implement new systems. In bust times, the old businesses fall away, and new businesses start to take over - they'll need to update and revise and implement new systems. Accountants rule the world.
6. Blackrock to sell bonds to buy back shares from Barclays. Link: Blackrock'n'roll. Barclays is selling ahead of a new round of Basel rules (Basel III), which would require the bank to set aside capital against their Blackrock investment.
7. Tiger Brands prioritises African expansion. Link: It's where the money is. 
8. IMF tells the UK that it needs more stimulus. Link: And possibly some tax cuts. The answer is always stimulus. 
9. The EU leaders have their 18th Crisis summit. Link: I'd get drunk at that party. Unless I were Angela Merkel. Because if she does, she might get taken advantage of by a socialist Frenchman and/or a band of unruly Mediterraneans. 

That's all for now.

Have a good day.

Daily News Roundup 2012: Tuesday 22 May

Good morning

The headlines:

1. RollingAlpha is moving to a new home. Link: www.rollingalpha.com. It was time. I'll keep posting on both the blogspot site and the new site for the next few weeks, and then I'll let the blogger site go dormant. Please update your RSS feeds if that's how you're following!
2. The Fall of the Facebook Share Price - it happened. Links: MZ is $2.2 billion less wealthy; and you don't say; and fingers are being pointed (at MS). The price fell to $34 and change at the end of the second day of trading. Everyone's saying "but if you have shares - they have value!" Yes - if you had them to begin with. But not if you bought them on Friday morning at 42 bucks a pop. That's an awkward loss in two days of trading. I think most were expecting a performance a la Linkedin or Groupon. Sadly not. Now, of course, there are fingers being pointed. At Morgan Stanley, at Facebook for being greedy, at Nasdaq (frankly - they should take some blame just for being a general fail). MS is being blamed for "misreading the atmosphere" or something. I think they mean that MS overestimated the "retail interest"* and/or level of crazy by first increasing the number of shares for sale and second increasing the price range. And now people are irritated because it was mispriced? But - how did they not know that it was mispriced?! Geezlike. If THAT'S the argument and now they want MZ and MS to answer for it - then they well deserve the loss. 
3. Merkel says she won't shy away from a clash with Hollande. Link: Trouble in Merkellande. It makes sense - different viewpoints make for tense egg-shelling around the negotiation table. 
4. JP Morgan counterparties say that losses may widen. Link: I think they just enjoy watching Jamie call himself names in public. But the Hedge Funds are saying that JPM is still in those trades (Jamie Dimon is also saying that they're still in those trades) - and if the Eurozone goes down the plug-hole any time soon, JPM will join them. That's being slightly dramatic. But most likely Jamie Dimon will join them. CEOs have been fired for less. Ask that Thomson guy formerly from Yahoo! Anyway - the point is that JPM hasn't liquidated their positions. Sounds to me like they should close them out (ie. spend some money on taking opposing positions in the trade). It's either that (if they can find counter-parties) or more derivatives. Two wrongs? Let's hope, for Jamie's sake, that someone makes it right.
5. JP Morgan has suspended share buybacks. Link: But only because of International Capital Rules - not trading losses or anything. The pensioners can sigh in relief though because the dividend payout won't change. But if I was CEO, and I honestly thought that the CIO (Central Investment Office) losses weren't such an issue, I would be climbing the walls trying to buy back stock. The general consensus seems to be that Someone (ie. the Fed) told them to stop. 
6. There are more US Budget Troubles. Link: Something something "paper tiger". Wait, what? This time, President Obama is the one that wants to stop the spending (on defense). The Republicans are reacting in a turnabout fashion and saying that the US can't cut defense spending for fear that the US becomes a "paper tiger". I think that a Chinese metaphor is a bit inflammatory. 
7. Rajat Gupta "threw away his duties". Link: That is some styling english right there. Does his prosecutor speak english? Rajat Gupta was the Goldman Sachs director that was leaking the good stuff to Raj Rajaratnam, who traded on the news and got 11 years in prison and a $90 million odd fine in return. But back to the opening statement: Rajat's prosecutor may lose the case on a linguistic technicality. One of the jurors is a fourth-grade teacher - and it only takes one person to hang a jury**. 
8. End of extended benefits may decrease the US unemployment rate. Link: Makes sense to me! If you're being paid not to work - you're not exactly going to be forced to take jobs that are "beneath" you. In fact, even if those jobs are relatively well-paid. Sometimes, people just really need a kick in the pants. 
9. The US won't ease oil sanctions at Iran Nuclear talks. Link: Because you won't negotiate with terrorists? Either way - the situation won't be solved next month. Higher oil prices, here we come.

That's all for now.

Have a good day.

*BITCHES BE CRAZY.

** One of the other jurors is a "freelance beauty consultant". WTF is that?

The Facebook IPO: Bitches Be Crazy

Recently, I have been paying attention to a number of news stories. In no particular order:

1. The Facebook IPO

First, some key points:

1. Listing on a Stock Exchange is usually for good reasons - it is NOT just the next logical step in the success ladder;
2. "Retail Interest" is an investment banking euphemism for "bitches be crazy".

With regard to item 1, there seems to be the general conception out there that listing on a Stock Exchange is the business version of graduation. A "Congratulations, you've made it!" for juristic persons. Perhaps it's our human need to identify: we look on homegrown businesses with affection and despise the giant corporates for being inhuman. Sole proprietors are babies, private companies are the idealistic teenagers, and the big listed companies have grown up, sold their souls to the profiteering overlords and moved to a lush tropical island with exotic beaches and mythical tax rules.

Sometimes, this is true.

Mostly, it is not.

The reasons for listing on a Stock Exchange are roughly summarised as:

1. The world's equity markets are the largest source of financing anywhere. For the unlisted, you're mainly limited to borrowing money and/or putting in your own. But selling bits of ownership in the form of shares? Financial gold.

So that's the reason. Where it really gets interesting is  motivation. I reckon that there are roughly two motivations worth mentioning:

1. The first is that the owners want to raise the capital to expand/grow;
2. The second is that the owners want to cash in on their initial investment.

The first sounds like the type of share I want to consider buying. The second sounds like the type of share that I would only consider buying after getting some answers to some awkward questions.

Why would I prefer the first? Well - when the owners want to expand, I'm already beginning to think that they wouldn't have gone through all the effort (and cost!) to raise the money in an IPO if they weren't confident that they had a solid business plan in place. Obviously, I'd want to analyse that plan on my own (in case they're idiots); and see what the rest of the investing world is saying (in case I'm an idiot); and then compare the two (rolling the dice). Point is: these companies start out on the front foot.

But when the owners are looking to cash-in on their initial investment...

Instant hair-rise on back of neck. Because the question immediately becomes: why are they looking to cash-in at this particular point? And here are my thoughts:

• If I were the guy cashing in, I would be looking to sell off when everything is at its most valuable. 
• But because I'm human, and obey the standard rules of human behaviour and bias, I would be constantly weighing up my desire to maximise wealth against my emotional attachment to this company that I have nurtured ever since I dropped out of Harvard and stole the idea from those twins.
• Which means that I would only start to cash in when it became clear that I stood the risk of losing some of that wealth. 

Which leads me to the Facebook IPO.

$38 a share.

More expensive than almost ANY OTHER company in the S&P500 (although now, maybe it'll be the S&P501). It's being valued at almost 107 times earnings.

That's a PE ratio of 107.

Google's PE ratio is 18.19. Apple's PE ratio is 12.93. During the height of the dotcom bubble, the average PE ratio of the S&P500 rose to about 30. Sure, firms like Oracle had PE ratios as high as 120 - but that was during a pricing bubble that crashed chaotically. Oracle's current PE ratio is 13.48.

We must be serious.

There are 7 billion people in the world. Facebook now has 900 million users. But it doesn't have access to China*. That leaves it with around 5.5 billion. Assuming that the advertising revenue will grow with the consumer base, if Facebook is used by every single person in the world, its earnings will grow 6 times. And then what?

Someone needs to explain their growth plan with something other than "growing the consumer base".

I'm just saying.

#BitchesBeCrazy

*who no doubt will develop a version of Facebook known as Facedook that will be the same but cheaper - and the Chinese government will see no problem with it. 

G-8 says Greece should stay

The article of the day. Link: Uh huh - but what if it's too L-8. 


Mr. Obama is supporting Mr. Hollande in his pro-growth policies. And poor Angela M is finding herself the last austerity stalwart/bulwark/any-other-misunderstood-nouns. 


My question: should Obama really be dishing out the economic advice? Yes - things look to be improving in America on the face of it - but that's all eye-shadow and lip gloss. Underneath the "base" and "foundation" is an acne crisis that is desperately in need of roacutane. And the "base" and "foundation" are just making it worse. 


On the other hand, there is the Eurozone. Which is depressed and has clearly lost its Maybelline contract. Sure - it's ugly. But halfway through the treatment is no time to stop!


Grit teeth. Power through. Beauty is pain.


Economic surgery can't be superficial if it's to look good in the long term.

Daily News Roundup 2012: Monday 21 May

Good morning

The headlines:

1. Mark Zuckerberg got married. Link: Improving Facebook Relations with China. His new wife is Priscilla Chan. MZ managed to wear a suit. He designed the ring himself. They got married in a garden. When you social highlights become a Bloomberg news item, you KNOW that you're IT royalty. 
2. Trade disorder caused some awkwardness with the $16 billion Facebook IPO. Sure. "Trade Disorder". Firstly, trading started half an hour late (apparently - the NASDAQ struggled to price the first transaction). Then it couldn't confirm the trades (ie. it couldn't allow a trade to be completed). Now they have to take appeals or something. But seeing as the share price opened at $42 and ended at $38 - anyone purchasing shares will have won by saving $4 a share. But still - when the eyes of the world and twitter are on you - being a fail is such a fail. Oh - and did I mention that other shares (ie. Zynga) had trading suspended? The NASDAQ comes with circuit breakers - if your share price falls by more than 10% in five minutes, the system cuts it. No one is sure what happened - but it seems that it was all part of the same problem. Oi vey. Link: Oh NASDAQ.
3. NASDAQ blames poor design. Link: But you designed it, surely? Something something "not designed to handle this kind of activity and/or cross trade". What they mean by "cross-trade" is that the share price being asked by sellers was higher than the share price being bid by buyers. When I want to buy for $42.50 and you want to sell for $42.99 - that creates some awkwardness on the price front. NASDAQ naturally concluded that the opening price would be $42.05. Which looks like nothing natural to me. Until the share price dropped almost immediately back to $38.01; at which point, vindication (see below). Nasdaq's CEO Robert Greifield admitted that this was not their "finest hour", but he "certainly hope[s]" that his job is safe. Bungling the biggest IPO, like, ever? Hope may be all you have. Because a technology fail for a technology IPO has poetic irony - an irony begs for a scapegoat's head on a platter. A silver platter that can be sold to pay off all the folk that are going to be suing this morning. Ha ha ha ha ha.
4. The Undertakers Underwriters step in to save Facebook IPO price. Link: Not as wonderful as hoped for. Which means that every time the share price dropped to $38.00, they stepped in to buy up shares, boost demand, and maintain the price. A meager gain of $38.23 by close of trade. Baited breath to see what happens when they let it all hang loose. My feeling is: "Drop it like it's hot". 
5. Alibaba is rebuying its shares from Yahoo. It's repurchasing Yahoo's 20% stake for $7 billion, which it's been trying to do for over a year; and the pressure really has been on since September. In that time, Yahoo has been through two CEOs and is now on its third. Some say that Three Point and/or Daniel Loeb are to blame. From what I recall, I think that DL is quite the fan of the Alibaba sale. So is Alibaba. Amazing how not even a week after Mr Thomson left the building, Alibaba is delighted to announce its repurchase. The Chinese are saying that Yahoo can use the cash to turn Yahoo around. That, or give all the cash back to its shareholders (which is exactly what Yahoo is planning on doing). I remember when Yahoo was awesome. Now? Now I'd rather buy Facebook shares at any price*. Link: Taking back China for the Chinese. 
6. Iranian minister expects oil prices to rise. Link: Oh yes! The Iranian oil sanction crisis. It's still ongoing. July 1 is D-day. Can you imagine an oil crisis on top of a Euro crisis on top of an American Debt crisis? Maybe the Mayans were a touch optimistic with their predictions. December 21st seems too far away.
7. Luxury homes bidding wars in California. Link: You just can't keep good Americans down. The sellers are surprised. 
8. China to speed up approval of qualified foreign investors. Link: Red tape? So not only are there quotas, it's also super painful to get onto them. It really makes you feel wanted. The Chinese always strike me as super-cautious. They'll help the Eurozone out with aid just as soon as the Eurozone has sorted itself (and no longer needs the aid). They won't change rates to boost the economy, they'll just change reserve ratios to allow people to borrow more at the current rate. They won't ease foreign investor restrictions, they'll just make the current restrictions easier to navigate. Maybe caution is not such a bad thing in the current climate...

That's all for now.

Have a good day.

*Yes, that's an ironic lie - because I'd rather buy Greek bonds. Which is also an ironic lie: actually, I'd rather be Robert Greifield this morning. But then, that's an ironic lie as well. No. If anything, this morning I'd like to be Priscilla Zuckerberg nee Chan - because she got in there just before MZ "created" the FB. She's put up with him for over 9 years. Respect. But mostly, can you imagine what her divorce settlement will look like? 

The Facebook IPO Stories!

The Facebook IPO stories:

1. Facebook has raised $16 billion in "record" offering. Link: And it starts trading today. They sold at the top end of the range ($38 a share), which is crazy. 421.2 million shares. That values the company at $104.2 billion. But, I suppose, even though I think that price is unjustifiably high (and I really don't have a justifiable reason for feeling that way - apart from "gut feel"*) - market sentiment doesn't really have such a strong hold on fundamentals. The euphemistic phrasing for this is "the banks feel that there is a lot of retail interest". The price gives FB a market value half that of Google. And, interestingly, if you take the market value as a multiple of sales, FB is more expensive than every single company listed in the S&P 500. And all this for a company that's losing out on its Advertising Revenues because we're all logging on via our cellphones. Eyebrow raised. 
2. US-deserter, Singapore-resident, Facebook-co-founder Eduardo Severin will still pay "hundreds of millions of dollars" in taxes to the US Government. Link: Because that's how you finance a deficit. That's what he says. In a shameless display of vote-mongering, many legislators are getting hyped and trying to impose more taxes on people surrendering their US citizenship if it seems that they're doing so only to escape taxes - but Eduardo gave his citizenship up, like, eight months ago. Doesn't it feel a little late to be leaping on him specifically? One particular senator, Charles Schumer, is trying to get a new bill passed that (obviously) imposes higher taxes, but also a permanent barring from the US for the rich kids leaving. His quote: "Eduardo Severins wants to de-friend the United States of America just to avoid paying taxes. We aren't going to let him get away with it." Guy? I think he already has. How are you going to make him subject to a law that you haven't passed yet and that definitely won't have existed at the time of him leaving? 
3. Facebook trading to test a rule. Link: The Volatility Trap Avoidance Clause. The idea is to avoid the volatility that generally accompanies the launch of a share with no previous trading history. And, well, general embarrassment for NASDAQ if it all goes pear because the "Retail Interest" (see 1. above) second and third guesses itself before trading begins. The rule is: no buy orders to be accepted before trading begins. Mostly because these are "buy at the lowest possible price" orders. What is the lowest possible price if the share hasn't traded? Chaotic, is what.
4. Goldman Sachs and its funds sell nearly half their facebook stock. Link: Raising $1 billion in the process. It sounds like a hedge, doesn't it? If the share price goes up, they make on the half that's left, and don't lose of the half they sold. If the share price goes down, they don't lose on the half they sold, and lose on the half they kept. But the fact that they're selling almost half the investment - doesn't really bode well for future increases, eh?

Conclusion: Bitches be crazy.

*Which is really a redundant way of saying "my justification for feeling that way is because I feel that way". Disclaimer - I gave it.

Daily News Roundup 2012: Friday 18 May

Good morning

The headlines:

1. Facebook IPO News! There's so much of it. See here for the summary.
2. Jamie Dimon agrees to testify to Senate on JPM trading loss. Link: Meanwhile, back at the opposition camp. Awkwardly in the face of Goldman's facebook score... And back to the Volker Rule debate. 
3. Fitch cuts Greece's credit rating again. Link: "Surprise". The surprise was the re-rating upward after the debt restructuring. Anyway - it's back to CCC.
4. US Insurer costs relating to Dog Bites increase to $479 million. Link: Bitch please. 
5. Large trades in Junk-bond ETFs attract attention. Link: Speculators are out Whale-Watching. For the record, Exchange-Traded Funds are a little like buying shares in a basket of investments rather than going through the expense of buying each of the underlying investments*. Anyway - it seems that some of the largest transactions ever recorded were made on two ETFs that compose of investments in Junk bonds; and these transactions were completed just hours before Jamie Dimon announced that hugely awkward $2 billion loss moment. For example, Invesco Ltd ETF had a one-day inflow that boosted its share price by 25%. That's not normal. In fact, it sounds a lot like a Bruno-Iksil-scare. The markets are looking for the tell-tale signs!
6. Human Genome in talks to avoid a hostile takeover. Link: GSK? I d(o)n(t)a wanna. They're trying to ward off a hostile takeover from GlaxoSmithKline. On May 9th, GSK directly offered shareholders a cash price 81% higher than the closing share price on the day before GSK's interest was made public (April 19th). Human Genome has taken advantage of a "poison pill" clause in their shareholders' agreement (is that the right term?) - which gives them a year to search for alternative investors.  

And that's all for now!

Have a great day.

*It's similar to a Unit Trust investment. However, ETFs trade constantly on an exchange, where Unit Trusts are usually priced once daily (anyone who's worked in an Asset Management firm will know that there are some people who do NOT get disturbed at repricing time - at the risk of death - so even if you're dying...). 

Daily News Roundup 2012: Thursday 17 May

Good morning

The headlines:

1. The Democrat Senate rejects five different budget plans. Link: WHAT is going on? It seems that the Republicans used some obscure rule to force the Senate to rule on all their proposed budgets (in a single day?) -  as an attempt to embarrass the Democrats for failing to organise a budget for the biggest economy in the world. Democratic fail. There's the usual mud-tossing about the Democrats just shooting holes in suggested plans, whilst failing to come up with a plan of their own. Frankly - I found the "shooting holes" metaphor a bit of a cheap shot (pun intended) at the pro-gun control Democrats. The Democrats slung back with "the Republicans seem to have developed amnesia". Entertainingly - only one budget plan looked at all like Obama's original budget suggestion; and that plan was rejected 0-99 (ie. UNANIMOUSLY). So it seems that unanimous bipartisan agreement is something Washington is capable of - all it needs is Barack's seal of approval to seal the Senate's complete disapproval. Muchos gracias at Florida Senator Marco Rubia for highlighting that.
2. JPMorgan's shareholders sue over the $2 billion loss. They've sued both the bank and Jamie D in separate lawsuits. You see - when you say things like "this trading situation is, like, so totally just a little teapot tempest," and it turns out that the tempest is a 2 BILLION DOLLAR LOSS - there are traders out there who are going to cruise out of Arizona on a highway train right to the door of your Manhattan apartment in search of blood and compensation and mostly the second one. Which is fine - except exacerbating the bank's loss seems a little pointless. And going after Dimon - well hasn't he punished himself enough by saying all those lowly deprecating things on TV in one of the wordiest displays of mea culpa the finance world has ever seen? Link: So then: to what end? 
3. Merkel and Hollande (Merkellande? Horkel?) say that they will concede Greek growth measures if the Greeks stick with austerity. Actually - I lied. What Horkel said was that they would "consider" some measures if everygreek toed the austerity line. On a side-note - apparently the Horkel meeting was delayed because Hollande's plane was struck by lightening mid-air?! Sweet Zeus! I would put money on the fact that there is a Greek contingent claiming God's smiting retribution. Yes... But you know that Hollande is the Socialist one promoting growth? Conclusion: the divine order and/or the weather wants Europe to get austere. So enough of this Greek carrot business... Link: The German/Hollande Carrot = Europe's Garrote?
4. Days after increasing the price, Facebook is now increasing the volume of shares to be sold by 25%. Link: Thanks to Goldman and Accel. Yes - Goldman has now doubled the number of shares it's offering, and Accel has increased its share offering by 28%. Potential investors should be VERY CONCERNED. Mainly because if the big boys are selling more, the best explanation is: the price is far too high. Oh, of course, there are some investors saying that it's because the demand is high - which makes NO sense - if Accel and Goldman thought that the price was too low "but the demand is high", that's hardly encouragement for them to throw more shares onto the roadshow. Honestly. 
5. Greece plans for new election on June 17. Link: Now framed as the Euro Referendum. 
6. ECB won't change its policy stance. At least, it has no intention of increasing monetary stimulus. Draghi has said that it would be better if Greece stayed in the euro, but the ECB won't "compromise on its principles" to prevent an exit. Link: Draghi is a drag.
7. Romney attacks Obama for not fixing Bush's mess. Or, rather, he told Obama off for saying that he would fix it, and then not fixing it. Link: Overgrown Bush left uncleared - Obama is a bad gardener; Romney is a racist. But jokes aside, I think that the trouble is that Republicans have some sensible economic policies, and then get stupid about things like sorting the tax system. And the Democrats have some sensible economic policies, and then get stupid about things like cutting federal spending. Umm - do both.
8. Treasuries fall before TIPS sale. Link: When Yields go Negative. Currently everyone is rushing to safety - and they're willing to pay for it. That's a negative yield: I'll PAY to keep my money is US treasuries - mainly the ones that are Inflation-Protected (the IP part of TIPS - the T and S being "treasury" and "securities" respectively). However, there is now concern that the rates are too low, and this will curb demand at next week's Treasuries auction (when the US sells/rolls more debt). By this time next week, who knows what Greece will have done? I'm sure that there will be no lack of demand.
9. Zeti says Greek Euro Exit consequences will be "unimaginable". Agreed - but... Link: Who is this Zeti person? She's Malaysia's Central Bank governor. Sometimes - I read Bloomberg's headlines, and I wonder if this really really qualifies as a headline?
10. Coffee drinkers live longer. Link: The I-Told-You-So Dance.

That's all for now.

Have a good day.

Daily News Roundup 2012: Wednesday 16 May

Good morning

The headlines:

1. The Greek President proposes a government of non-politicians after failing to form a government of useless/unpopular politicians. If the kids (read: "brats") can't agree on an interim government now (until the new round of elections next month), the mandate gets handed to either a Council of State or the Supreme Court. First off, I'd like to express amazement at how complicated the Greek political system is. Secondly, I'd like to express amazement at how prepared the Greek constitution/electoral law is for just such an eventuality. Thirdly, I'd like to express amazement by asking "have you ever in your life?" A government of non-politicians sounds like a military junta (who are undoubtedly waiting in the wings). Frankly - a military coup might be the cleanest thing here. Instant suspension from the EU. Boom. Link: Useless.
2. The Greeks are running the banks. And so it starts. For anyone that has been wondering how Greece leaving the euro will play out, it starts with the pitter-patter of Greek sandals running out the bank doors with all their money in (euro) cash to be stuffed in a mattress and planted in the fields. The Central Bank head, George Provopoulos (Greece has a Central Bank?!) has approached the president (who appears to be nought but an ineffective figurehead that has no political significance whatsover - is he a king?! Democracy, my proverbial posterior) with a "small problem, sir": that he describes as "great fear" that isn't yet, but could quickly become, "panic". He also, apparently, has a talent for understating the obvious. Link: No need to panic, sir, because it's not "panic" yet. Try "manic", you goon.
3. On the other hand, Greece is going to repay the 435 million euros that fell due yesterday. Link: That's what they're saying now!
4. Finally, in news that's not Greece-related, the US Department of Justice is about to start a criminal probe into the JPM $2 billion loss. But I thought that this was all just an "egregious error"! Sigh. And Jamie Dimon has tried so hard to self-flaggelate his way into public sympathy. But question: I'm just not sure how criminal a case you can make. Because, well, mistakes (even egregious ones) happen. And that's just, like, life in the Investment Banking world. Pass your Volked-up Rule first, DOJ, and then you can probe away usefully. Rather than engaging in (what appears to be) a PR exercise that spends lots of money that you don't have. Now that's egregious. I believe Warren Buffet calls this "throwing good (borrowed) money after bad"? Link: The DOJ wants to probe JPM.
5. Apple is releasing a new Macbook that looks even more awesome. Unlike the Wozniak, I would sell Facebook shares at any price to buy it. Link: Thinner, Lighter, Faster.

That's all for now!

Have a good day.

Daily News Roundup 2012: Tuesday 15 May

Good morning

The headlines:

1. California Governor Jerry Brown suggests a 4 day work week to curb the deficit. Link: Would you take longer weekends for less pay? But yes - shorter work weeks, and about $8.3 billion in other cuts (mostly in welfare and medical aid to the poor). Apparently, trimming the work week would result in a 5% saving across the board (for a 5% pay cut - hell yes would I take a longer weekend). At the same time, Brown is trying to push through a temporary tax increase - California lost a million jobs in the post-2007 recession, which reduced tax revenues by about a quarter, so now the revenue situation needs to be addressed. From what I understand, most of this is now sitting on a ballot sheet for November. What are the chances?
2. Yahoo changes its CEO because he lied on his CV. Link: You're only finding out now? Firstly - where was the due diligence when this was first going down? Oh Yahoo - such a fail. However, that said, Scott Thomson was a Paypal exec (where was Paypal's due diligence?!) and a VISA exec (where was Visa's due diligence?!): the issue is that he has a bachelors from Stonehill College in accounting, not computer science - which is sometimes correctly designated in filings, and sometimes not. But the point is - degrees in computer science from 30 years ago? Well, they wouldn't be worth much now given that 30/40 years ago, the kids were still playing games in black and green. Surely the degree is no longer relevant - it's the experience that's important? Whatevs - the guy from Third Point, Daniel Loeb (an "activist investor") is responsible for flagging the issue and forcing the overhaul. He's not happy with management. 
3. Moody's is delaying any downgrade decisions. Until they've had a chance to assess the impact of JPM's trading losses, and the potential impact of the breakup in the Eurozone. Yes - because what we need are ratings agencies that lower ratings after the fact. I understand that rating downgrades could worsen the situation for a bank unnecessarily - but if the downgrade is warranted and you're going to do it anyway - don't wimp out. Link: Time: not of the essence.
4. JP Morgan's CIO chief retires. Farewell Ina Drew. Hello Matt Zames. It was inevitable really. Link: New guy plans a shake-up.
5. Jamie Dimon's position on the NY Fed is now up for debate. Link: Ye Olde Conflict of Interest. The question: is the Central Bank independent enough if it has members of the banking institutions it's meant to be regulating sitting on its board? But I think that there's always a conflict of interest. If it's not open, it'll be behind closed doors. Someone will be invited to a golf course, someone will get a bottle of French Claret, someone will have a little late night entertainment on the house. Short of removing the Fed altogether, you can't avoid that. So why debate it? It's like complaining that the poor are poor, or that humans don't have wings. Either ride the wave, or move to Singapore. Where the Facebook guy went.
6. The Greek Euro Exit debate goes public. Link: But hasn't it been public for some time though? Honestly, I think that Greece will leave. It'll be more painful than austerity - but the Greek people have too strong a sense of entitlement. All I read on Bloomberg are comments on articles written by the overly-arrogant anti-austerians, who make big comments about hidden oil reserves in the Aegean that the world wants to steal, and German occupation conspiracy theories, and "Greece invented democracy and it'll teach the world a new lesson". I say - let Greece burn itself on the hyperinflation stove. Let it burn.
7. Obama ad takes a knock at Mitt Romney's Private Equity past. Nothing like a TV ad interviewing steel workers that lost their jobs when Bain Capital (Mitt Romney was a co-founder of the firm) took over their steel plant. I want to use the phrase "cheap shot". Link: Politics is all about framing the issue..
8. Hollande has awkward election promise moment as corporate France prepares to start firing people. Link: You should phrase your promises more carefully, Monsieur. French companies from Peugeot to Air France-KLM are planning to restructure (euphemistic term for "downsize") in reaction to the economic slowdown in France and across Europe. It seems that their restructuring plans were put on hold before the elections to avoid becoming a campaign target - but now it's on. Some people say that Hollande's strategy includes regulated caps on firings. I always question the logic of that type of intervention - it's not sustainable. The company will file for bankruptcy if it can't make the necessary changes. And then what? The government will take them over? But that's going to require financing, which brings you straight back to a higher deficit through increased borrowing. The clear answer is economic growth. Oh yes. I see it now. Persuade Europe to quantitatively ease in order to save face.
9. Facebook is planning on raising its price range of its IPO. From $28-$35 to $34-$38. The Steve Wozniak announcement yesterday is beginning to make sense ("I'd buy Facebook at any price!") - coincidence? I think not. Get some big Apple name to throw fuel on the fire. I see that they went for the IT programming guy, not the business mastermind (probably because he's, well, late - but that can't be helped). Link: They're high.

That's all for now.

Have a good day.

Daily News Roundup 2012: Monday 14 May

Good morning

The headlines:

1. JPM CEO continues to self-flagellate with no signs of abatement. That may be because the trading strategy could lead to another $1 billion loss in this quarter or the next (I assume that they know that it has already - there are just prayers being offered for a recovery in that time). If the departure of the Yahoo CEO is anything to go by though -  this could be farewell Jamie. And the banking institution no doubt feels the same - while the Volker Rule won't really have an impact on what JPM is doing in London (as far as I know), there's a democrat senator out there that will leap on this to promote and push through a new version of the bill. Link: Just stop talking already!
2. Elizabeth Warren calls for Jamie Dimon to resign from the New York Fed. Obviously. Show me a politician that doesn't seize an opportunity to call for a resignation of someone famous. Liz is running for the Massachusetts seat on the US senate. Hmmm. About that Senator and the Volker Rule. That Mother-Volker-Warren's rule? But she wants JD to resign to show the American voters that the bankers "get it". Go to the bloomberg article for a great pic of Liz doing a dance move to "Tragedy". Link: The not-yet-a-senator story.
3. But the Mormon Mitt wants to repeal the Dodd-Frank Law. Oh yes. Farewell to the Mother-Volker-Warren rule. He has a 59 point economic plan that has space for Dodd-Frank principles, but steers clear of over-bearing regulation. He'd also like to repeal Sarbanes-Oxley, which is the piece of regulation that followed the Enron saga. And Obamacare. There's almost not enough space to comment on how momentous that would be. Each financial crisis has been greeted by America with more regulation, blaming lack of regulation as the problem. But maybe Mitt has a point - we keep adding regulation. Has that stopped the crises from happening? Maybe we need to go back to something more principle-based, rather than rule-based. Rules can be worked around; principles can be argued against. But in general, I think that a rule doesn't work as well - because the assumption is that if you can find a loophole, then there's no longer an issue. Whereas a principle involves a consideration of consequence and/or ultimate outcome. Human nature: it's a cost. Link: The Romneyan Repeals.
4. California's deficit swells to $16 billion. Link: Awkward! Particularly when this is communicated to the Californian public via Twitter. Thanks Governor Brown - cresting the social media wave. The shortfall has almost doubled since January. The courts and the Federal Government have blocked spending cuts. The State failed epically on the tax collection front. And there's no more Terminator to terminate it. If anyone feels like reading Michael Lewis' "Boomerang" (everyone should) - there is a really interesting section on America's debt, which largely involves California being the first state to go bankrupt. Mostly because the governance system in California seems set up to prevent any sort of change whatsoever. And there she blows. 
5. Facebook Co-founder Eduardo Severin gives up US Citizenship before IPO. From watching the movie, I seem to remember Eduardo as being royally screwed by the Zuckerberg. Anyway - he's now officially from Singapore. And escaping the IRS. Link: Eduardo has updated his Hometown.
6. Syriza won't join Greek Unity Government. Link: They "won't betray the Greek People". It's such a farce of flagrant rhetoric. Honestly - when you read a Syriza speech, you'd think that they plan to solve any and all economic problems with inflammatory adjectives. One of their supporters actually sent me a solution in the form of an article on "Rebranding Greece". As though that is the primary problem. 
7. ECB's Honohan says that a Greek Exit from the Euro would be manageable. For countries other than Greece. "Technically". The argument is that this is all management of perceptions - which is not an easy (or even, achievable) task. After all, a World War started with the assassination of a Duke. And something about butterfly wings in China and a hurricane in the Caribbean. But I suppose that most things can be traced back as a series of mounting reactions to a relatively incidental occurrence. Doing something is probably better than doing nothing at all. Link: What's reality anyway?
8. China lowers bank reserve requirements. Link: Again. Reserve ratios have been cut by a further 50 basis points. This should increase the amount of credit available to the public. Many analysts are suggesting that China should be pursuing a more aggressive monetary policy. But that seems to be the starting point of almost any analyst: "make the slow-down slow less - spend!"
9. Apple Founder Steve Wozniak says he will buy Facebook shares at any price. Link: ?! Okay - I know that's not true. Common sense will prevail because there are obviously extremes, like $1billion a share, that will just not bear out. This sounds like the financial advice of mad scientist. 

That's all for now.

Have a good day.

Bruno Iksil: The Wailing Flailing Whale Update

Well wail whale

JPMogwarts.

Your wizard's a bad one.

It turns out that the strategy that moves markets just got awkwardly filed away as an egregious error. The highlights:

• "The portfolio has proven to be riskier, more volatile, and less effective as an economic hedge than the firm previously believed"
• "In hindsight, the new strategy was flawed, complex, poorly reviewed and poorly monitored"

An awkward egregious $2 billion error.

That Jamie D CEO called a "tempest in a teapot" way back when it first got reported. Mr JD: it's either too big to fail, or too small to make a difference. But I think that you need to pick one.

Except, um, fail.

Bloomberg's article: $2 billion loss at JP Morgan's CIO.

For a better breakdown of how it all went wrong, I defer to Matt Levine: Whale Sushi on the Menu.

Daily News Roundup 2012: Friday 11 May

Good morning

The headlines:

1. Mitt Romney bullied in school. Link: He apologises. Yes - the bullier. Apparently, that all changed after a Mormon missionary program with his wife in France. Bloomberg names one of the bulliees as Gary Hummel. I mention it only because the gay character on Glee is Kurt Hummel - and given the amount of bullying that character experiences, as well as the heavily Democrat flavour of the series, I immediately wondered if this was all part of the Obama master plan. 
2. Spain seeks to avoid bailout by understating bank losses. The Spanish government has asked the Spanish banks to increase their bad debts allowances to take into account debt incurred by property developers and construction firms. But what about the home loans and commercial mortgages? The argument is: you can't have one side of the market going sour and the other side continuing just fine. The empirical evidence just doesn't pan out. Failing to take it into account creates a situation where Spain is underestimating the full effect of a potential default, and will therefore be less likely to have pre-empted it. I'd rather take out a bigger loan to cover the eventualities - which shows planning and forethought; than take a smaller loan and be forced to take a larger one when I'm in difficulty (because that's when you have to approach loan sharks and/or you can't find anyone to lend to you). Proactive, not reactive: it's better that way. Link: The Trouble with Real Estate.
3. Greece may hold the EU over the barrel with its $510 billion debts owed to private bondholders and the ECB. It's the other side of the equation (that seems to be the general trend of this post) - who currently holds the Greek Debt? And who will lose if the bailout doesn't happen? The ECB (and Europe) has a direct interest in not letting Greece default. Frankly, if the Greeks are shrewd bargainers, they could bargain harder. It's not all them now - with each bailout, Greece becomes more and more the ECB's problem. Link: The Greek Trump Card.
4. Euro poll shows more than 50% expecting a euro exit. I think this goes without saying. Link: Bye bye now.
5. Greek government mandate passes to Pasok. This too shall fail. Link: Third time lucky? Or once bitten, twice shy, third ridiculous.
6. US House votes to cut food stamps over defense. It's all about priorities. Lose weight, look great, fight back. Link: The Defense Diet.
7. Obama says rule rollbacks will result in $6 billion in savings. These are savings on Street Signs. This is a $6 billion saving over five years. So Americans will be more lost. And the government will save 11 hours worth of their time. Link: What this country lacks is direction.

That's all for now!

Have a good day.

America's Hyperinflation

This is my 100th post.

It's only appropriate that I write something a little controversial.

Recently, I had the opportunity to meet a very successful (but discreet) wealth manager. He asked for my prediction of what would happen in the next five years (I think it was a test). My answer was "America will hyperinflate". Firstly, I think I may have failed that particular test. But secondly, I think that there is an argument to be made here.

Because when I got home later, I pulled a Google search on "America's Hyperinflation", and what I got was a string of articles on Forbes and Business Insider and a couple of other less name-droppable sites, all portending the swan-song of the Fat Lady in the spangly dress.

And for the record, this would not be her first hyperinflation swan-song. After both the War of Independence and the American Civil war, the USA (or, at least, some of her states) went through a period of hyperinflation. It may not have been hyperinflation by the conventional quantitative definition*, but it was hyperinflation nonetheless. Because the difference between inflation and hyperinflation is more ideological that quantitative:

Inflation is a rise in prices. Hyperinflation is the loss of faith in a particular currency as a medium of exchange, as expressed by excessive rates of inflation.

The question then is: how does a citizenry lose faith in their currency?

The Common Factors 

1. A weak government, without the parliamentary majority and/or the ability to make and enforce changes in policy.
2. Limited ability of the government to raise money through debt issues (either due to poor credit ratings or lack of lenders' capital or both).
3. The tax system is intractable, corrupt, or poorly policed.
4. The government is running a large fiscal deficit (they're spending more than they bring in)

What these factors essentially mean is that the government's finances are stretched. Not that they are bankrupt or insolvent - just that they walk a financial tight line. In the same way that your Macdonald's burger flipper has a budget plan down to the last cent, with a maxed credit card and a double mortgage on his mother's apartment. No room for luxuries there.

This leaves the economy vulnerable to "fiscal shocks".

The Steps Toward Hyperinflation

1. A "fiscal shock" takes place. This is unplanned and unbudgeted-for expenditure. So, for example, a terrorist attack sends the country on a campaign of retribution. Or a sudden increase in the oil price requires government intervention in the form of subsidies to smooth out the impact on voters. 
2. This expenditure needs to be financed. Owing to factors outside of the country's control (such as a lack of global liquidity due to a global slowdown), the government is unable to borrow money to finance the expenditure. And because of the nature of its tax laws and the lack of a solid parliamentary authority to change them quickly, the tax base cannot be expanded to carry the short-term deficit.
3. The government authorities then approach the Reserve Bank, and request that they, as the monetary authorities, lend them the money. They are, after all, the lender of last resort.
4. The government authorities get their money, in the form of freshly-typed balances in their bank accounts (most people assume that money creation is a notes and coins thing - it isn't: today, most money creation is electronic).
5. The money enters the economy, and you have the standard story of more cash chasing the same amount of goods, demand and supply forces play out, and you have a rise in the general level of prices.

At this point, everything still seems a bit manageable. It's just one fiscal shock. The solution was only temporary. And if anything, the sudden flush of liquidity has caused some expansion in the target industries (in the examples given, weapon manufacturers and oil importers), a nice ripple effect, and everyone feels a little prosperous. 

But there are some issues still at play that may not have played out yet:

• Generally, taxes are based on the returns earned in the past year. If inflation has played its role, by the time tax season arrives, the taxes collected have had their real value eroded. So the economy at large has experienced a lessening in its tax burden - which turns out to be even more stimulative. But for the government, its tax revenues have worsened - so its fiscal deficit is growing (after all, its expenses are keeping line with inflation - where its tax revenues are falling behind).
• Fiscal shocks financed by quantitative easing are not generally looked upon with favour by lenders. It's unlikely that there will be any more freedom with the debt.
• We have assumed that the fiscal shock has been a once-off anomaly. This is rarely the case - wars, for example, can't be paid for as an upfront package. Neither can oil subsidies.

So the conclusion of the fiscal shock episode is that the government is, if anything, worse off than before. And they're now even more vulnerable to fiscal shocks.

Then the inevitable happens: another fiscal shock occurs. But the status quo has not, because the government is weak and divided and unable to enact pre-emptive economic safeguards to change it. So the process repeats itself.

When Fiscal Shocks Happen Too Close Together

1. The inflation rate begins to climb more than expected.
2. The government's finances are further strained with the rise of inflation: tax revenues are falling (as their historical base loses value with inflation), and debt costs now incorporate a premium for expected inflation, making borrowing more expensive.
3. More frequently, the normal demands for government expenditure require a trip to the Reserve Bank. 
4. People begin to suspect that the government is adopting Reserve Bank borrowing (money creation) as a fiscal policy, and begin moving their cash balances into real assets (the loss of faith in the currency).
5. At the same time, holders of real assets start to increase their selling prices in anticipation of replacement cost, in an attempt to pre-empt the inflationary erosion on the cash received.
6. Inflation rises even further.
7. As the effect snow-balls, investors begin to take out bets against the currency (for example, leveraging their positions in the inflating currency). There is now a growing vested interest in the inflation.
8. Hyperinflation.

The Key Points

1. The episode can easily begin with a government policy that starts by being popular.
2. Hyperinflation becomes inevitable when the general population starts trying to reduce cash balances (which is not to say "physical bank notes" so much as "the money in bank accounts").

So now, the question is, what about America?

The Points in Favour of Hyperinflation

1. The US Government is split down bipartisan lines. There has been no real agreement between the Democrats and the Republicans on fiscal policy even when the times have been desperate (for example - the debt ceiling debacle).
2. In particular, tax policy regime change has been awkward.
3. The American Government has borrowed to previously unheard-of levels.
4. Its fiscal spending plans are set to increase exponentially over the next few years - particularly the programs that cater to the elderly and the sick (who are mostly elderly) as the population ages. 
5. The country runs a massive fiscal deficit.
6. Americans have a superhero mentality that likes to get involved in all things nuclear and bugger the economic consequences. A North Korea or an Iran could very easily become another Afghanistan or another Iraq or another Vietnam or another Gulf war.

The Points in America's Favour

1. The US dollar is the global currency of reserve. The world has a vested interested in not letting it go down.
2. When America's sovereign rating was cut, yields on its debt went down. That's not expected - and makes America almost Giffen-like in its economic authority**.
3. If the fiscal shock did come from a war-type scenario, Americans have a history of uniting behind a president/government, regardless of political party affiliation (after all, they voted Bush Jr. in for a second term).

So to sum up: do I honestly think that the US dollar will be debased? 

Look - I don't think that it would happen deliberately. But I do think that countries do strange things in a "Time of War". And the current economic position of the USA does not have a historical precedent. 

The trouble is that crisis economics is not the same as normal economics. When crisis hits, people panic, and there's fear and adrenalin and all manner of instinctive responses. What happens if there's a sudden crisis?

All the risk factors are in play. And it could all go very stupidly wrong.

* The conventional quantitative definition of hyperinflation comes from Phillip Cagan's academic paper in 1956: summarised as "hyperinflation occurs when inflation rates rise above 50% for more than a month". But the definition is arbitrary - and what it really did was allow Mr Cagan to limit his field of study to the seven hyperinflations that followed the World Wars. So actually, that definition looks less arbitrary and more like a convenience that limited his work load. Why we stick to it now is, I guess, economic hubris.


** A Giffen good experiences higher demand when its price increases. For example, amongst the poor, a rise in the price of bread will often cause an increase in demand for it - people need bread, and if it goes up in price, the reaction is to cut back spending on other foods and buy more bread. Maybe the American dollar, as the world's reserve currency, will have higher demand as it devalues - because of the implications that the debasement will have on the rest of the world's economy?

Austerity VS Growth

So the results have rolled in, and it looks like it's going to be an awkward one.

In France, Socialism has prevailed. Bye bye Sarkozy and his singing wife and the high society drama. Hello François and his civil-partner-that-he-won't-marry and the anti-austerity rhetoric. 

So what's different?

Sarkozy was all about the Merkozy. He advocated austerity, and he planned to cut the deficit by cutting costs.

Hollande is all about the socialism. He advocates growth, and he plans to cut the deficit by raising taxes.

The Arguments in Favour of Austerity

1. An individual cannot spend more than he earns. And by that, I mean that he cannot spend more in his lifetime than he can potentially pay back. So as a 26 year old - I could probably spend a fair amount more than I currently earn because my expected future earning potential should cover today's shortfall. 
2. But once I pass that threshold, I have achieved full bankruptcy. And I'm not talking about a liquidity issue - where I don't have enough money to pay back my installment today. We're talking about indefinite bankruptcy, where I will never be able to pay back my debt.
3. That point of no return is somewhere between "I have a shortfall this month" and "my debt installments are bigger than my entire salary".
4. In a country sense, this is where the projected growth in GDP is too low for the current debt levels to ever be sustainable (ie. the debt levels will increase even if the country spends nothing that month and pours its entire GDP into repaying the debt).
5. In that scenario - the only real options are austerity (being a fundamental paradigm shift in national consciousness toward a more sustainable manner of economic existence) or forced taxation (through inflation perpetuated by changes in the money supply).
6. Default is then just a timing issue: if a government is pre-emptive, it avoids default. If it is reactive, it defaults, and then you're back to either austerity or inflation.
7. Default, however, increases the likelihood of the inflation tax - because the market cost of debt will sky-rocket - and austerity may no longer be an option.
8. Therefore, an honest estimation of realistic GDP is required. You look at population growth rates and natural resources to see if the fundamentals imply economic growth (generally, a decreasing population and limited natural resources imply a low possibility of growth). You also project future expenditure to see if current commitments already made can be covered by this future growth (generally, an aging population with pension and medical aid plans is about to become hugely expensive). If current debt levels are unsustainable (as they are in Greece), austerity is the best option. 
9. Because growth will never be enough.
10. And what happens when you have sudden unbudgeted expenditure? There's no breathing space.

The Arguments in Favour of Growth

1. Semantics. There will always be enough economic growth to cover the debt levels. Besides, we think that we haven't passed that threshold of no return - that's all hypothetical.
2. Also, you never know. A plague could take care of the issue. Or a war. Or the end of the world.
3. And the voters want growth over austerity.

In the end, people are short-term gratifiers. We will take growth over austerity because we have an ingrained sense of entitlement. Life should be easy - and therefore, so it will be. 

Madness.

Daily News Roundup 2012: Thursday 10 May

Good morning

The headlines:

1. Officials begin publicly discussing Greece's Euro Exit. Mostly, just the German minister saying "if Greece wants to go, we can't make her stay". And an analyst saying that they're already out politically - now it's just a question of timing and orderliness. Oh, and the guy from Luxembourg saying that it will be "very, very painful for the people". All my Greek Nationalist "friends" will no doubt read conspiratorial threat into those words. And more than that, the ensuing chaos in Greece when she leaves the euro will be seen as some Germanic retribution rather than the eventual meltdown that follows a mass economic suicide. Ah well. Blame and consequence are not the same thing. Link: The Airing of Doubt.
2. Investors start to expect QE3. That's after two economists from big institutions (one of which was Goldman) made the report on the same day. So if we weren't expecting it before, we are now. Sometimes, I look at these guys and wonder if they don't make these announcements to get a little more volatility into the market. But this is skepticism talking - I'm finally reading "When Genius Failed", and I'm reminded of how many people put faith in the Black-Scholes option pricing formula, and how it rewards higher volatility through the higher pricing of options. But back to the QE3 story - the "improved" US indicators are not as good as they looked earlier in the year - and it's an election year. So some monetary stimulus in June may not be off the cards. Link: Floating America's boat.
3. US millionaires turned away from Foreign Banks. A few weeks ago, a friend of mine was telling me about his new bank account in a tax haven. The interesting part was him telling me that the lady at the counter was so relieved that he wasn't American, because the Americans are "a nightmare". And not for the obvious reason - but because of the rigmarole around their new tax laws. About a month later: Bloomberg has wind of it. The Foreign Account Tax Compliance Act (FATCA(T)). Bad for Americans attempting to avoid tax everywhere by placing the compliance burden on the banks. Mostly - we can blame UPS, who began this by blowing a whistle or something. Anyway - the point is, many foreign banks are now refusing to do business with US expats. Link: The Unexpected Consequences of Tax Evasion Rules.
4. EFSF release of 5.2 billion euros for Greece. I thought that this wasn't meant to happen until the elections were sorted? Link: So they're getting the money anyway?
5. Coca-Cola takes on New York City. NYC has had subway ads for years (apparently) linking soft-drinks to fat in a campaign to reduce sugar consumption. The American Beverage Association is upset because the campaign singles out a particular product over the array of culprits (MacDonalds, Krispy Kreme, Oreos, etc). The new Coke and Pepsi subway campaigns now "tout" low cal. options on the inside of railcars. Did you know that drinking three 20-ounce sodas is the equivalent of consuming 40 packets of sugar? New Yorkers do. Whether they know the size of that sugar packet, or what an ounce is, I'm not sure. But now they also know that Coke and Pepsi can find a different option for them that's not equivalent to as many bags of sugar. Or something like that. Link: Subway Fat Fight. 
6. Obama says same-sex couples should be allowed to marry. He finally came out and said it. Pun intended. In 2007, he was against it. Since then, his view has been "evolving". Now he's changed his mind. The justification for the change was, get this, "the troops". Which, frankly, is an impressive leap of logic: something about watching the youtube videos of military men and women getting home to their partners. The Romney campaign has heralded the announcement as a "gift". Does anyone else think it's stupid that your average evangelical is so concerned about the private lives and tax-planning considerations of individuals that they have almost no interaction with? They need to calm down. And deal with their credit and obesity issues. Link: Obama has evolved.
7. China investing in Africa over Europe. Anything but Europe? Link: Bang for the buck.
8. Al-Jazeera shuts Beijing Bureau. Link: After China denies a reporter her visa.

That's all for now!

Have a good day. 

Daily News Roundup 2012: Wednesday 9 May

Good morning

The headlines:

1. John Taylor of FX Concepts (a hedge fund guy) says that Greece will exit the Euro this year. Link: Actually, Taylor reckons that it may be as soon as next month. Well exactly - how often can Greece actually go to the polls and fail to form a government? Given that it needs the next round of the bailout package by next month; I don't think that any of the old school crew are going to give it to them without there being some balance of power committed to the original terms. That said, the anti-austerity tide is making a general tsunami of itself in almost all of the EU - so maybe the new kids on the block will ignore the old school as being, well, old. But if that doesn't happen, the newly-unformed Greek Government will approach the IMF. And Christine Lagarde will barely pause in her tanning booth to say "Non, bitches".  And I reckon that the anti-austerity league will throw their hands up in a huff and leave. This will all be foolish - because it's going to be bloody chaotic if the Greeks "elect" to leave the Euro (read my original article on this here). But if there are political parties that believe that Greece's spending is not the core problem; then I'll bet good money (NOT) on them believing that they can handle a monetary regime change. Like hell.
2. The big traders are abandoning Wall Street in favour of Hedge Funds. Link: As they should. I've written about it here.
3. Berkshire plans $1.6 billion sale of bonds to replace maturing debt. Link: And that's how WB rolls. It's business as usual - there's some debt coming due; they're replacing it. 
4. Syriza (anti-bailout) tells the pro-bailout guys to abandon their aid pledges. If they don't, then there's no chance of forming a coalition government in Greece. The definition of "stalemate". For the record, Alexis Tsipras (the Syriza leader) phrased it this way "I expect Antonis (Samaras) and Evangelos (Venizelos) to send a letter to the EU revoking their pledges to implement austerity measures by the time they meet with me tomorrow". And that, folks, is the core of diplomacy: self-presumption. Idiot. Link: Next candidate please.
5. Senate Republicans block Obama's student loan rate freeze plan. Link: Indeed. I refer back to yesterday: student loans appear to be on the increase, but not for any obvious reason. The suspicion is that it's just become another form of state welfare, as unemployed Americans return to school (and more debt) while they're not doing anything else. Higher education is not necessarily productive: there are courses and degrees out there that amount to nothing more than thinly-veiled leisure activities. I'm sorry: but the arts tend to be hobbies that you can sometimes make a career out of; not careers that you can sometimes take up as a hobby. Subsidizing that is just not-at-all-veiled vote-mongering.
6. French and Portuguese banks lose out on Africa deals. This has given breathing space for other banks with lesser colonial links. Like the British (Standard Chartered and Barclays) and the Americans (Citigroup) and the South Africans (Standard Bank and RMB). It's a pity - because for those original banks - go where the growth is. Don't dwell on an economically-obese homeland. Link: In search of growth.
7. In South Africa, the head of Sanral has stepped down. The rand has dropped on the news. The South African National Roads Agency Ltd recently lost a case in the high court - and has been forced to delay the implementation of its e-tolling system. But for anyone driving the highways of Joburg, all the capital investment has already happened. So the debt obligations are there and someone has to pick it up. If it's not the taxpayer directly, it's be the taxpayer indirectly. The SA government will have to pick up the tab - and at that point, lower credit ratings, higher interest costs, higher future taxes. Link: The Scaredy Fat Cat jumps ship.

That's all for now.

Have a good day.

The Bugger of Bad Bonuses

So the article of the day: The big traders are abandoning Wall Street in favour of Hedge Funds. Link: As they should.

All the big guys that do the cowboy thing and earn fun bonuses in cash are now being denied those bonuses in their former glory (those bonuses have been capped). So they're leaving to join hedge funds, where life is unregulated and bonus decisions unburdened by interfering state politicians.

This will mean a less rosy time for the big banks and the institutions whose assets they manage. After all - any first year finance kid will tell you that high risk is high return, that good traders know when to take calculated risks, and that good traders know when the return ain't worth it.

Is the expectation with the capped bonuses that somehow:

1. the banks will make more conservative trades with less risk-taking (as the high-risk traders will leave in search of more high risk returns ie. performance-linked pay);
2. that the big institutions will thus have less risk taken with their money; 
3. and then the bulk of the financial power will be less "agitated" and more stable (because most institutions' investment choices ("asset allocation decisions") are regulated and therefore cannot follow the high risk traders into hedge funds)? 

The likely reality is that the capped bonuses had less to do with forethought and more to do with jealous malice from the voting public. How to win votes: give money to your voters, or take it away from everyone else. Except that playing with incentives doesn't remove the desire for them; if anything, it just becomes more disruptive for business as the players try to regain lost ground.

What's more likely to happen is that the banks will lobby against regulation and win, reversing the trend; or the institutions will lobby against regulation and win, allowing them more autonomy in their asset allocations; or the banks will attract lesser traders who will be thoroughly thumped by the former traders (because there must be winners and losers), still earn their capped bonuses, and the big losers will be the American public who have smaller pensions.