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.

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: 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.

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.

Daily News Roundup 2012: Tuesday 10 April

Good morning

The headlines:

1. Facebook has agreed to buy Instagram for $1billion. Everyone is going "so they're spending their IPO money on iPhone apps!" But on the Instagram front: I have a number of friends that have been desperate to buy iPhones so that they can partake in the Instagram cult. So kudos to this guy-that-looks-like-Calvin-from-Calvin-and-Hobbes that pointed out (to me) the shock-horror scandal: last week, Instagram released a version for Android. The Apple fans reacted with shock and horror. But the cult following can now grow. Enough to validate a $100 billion IPO offer? I think they need to buy Angry Birds as well. Link: Facebook buys Instagram.
2. In order to cut back the deficit, Spain is seeking 10 billion euros in Health and Education savings. I always think it's interesting when politicians start talking about trying to identify "efficiencies". However - I do think that a state that provides free education up to the age of 16 (about 94% of eligible scholars attend state-funded schools), and one that guarantees free healthcare to all, including heavily-subsidized prescription medication (from what I understand - pensioners get their medication free, and non-pensioners contribute 40% of cost), probably has room for efficiencies. Link: Spain Seeks Savings.
3. In Mali, the recently victorious military junta is stepping down to end sanctions. After last month's successful coup, ECOWAS (the Economic Community of Western African States) stopped sending/allowing in fuel and food. The junta, which overthrew President Amadou Toure barely a month before he was due to step down (sounds like a lot of effort for five weeks of freedom), has handed power to President of the National Assembly, Dioncounda Triore. Apparently this is to avoid being blamed for the breakdown of the state. I'm sure this has everything to do with food and nothing to do with the Touareg rebels that took advantage of the chaos to declare a secessionist state in Northern Mali. Triore has 40 days to organise elections, and won't be eligible to run for president. ECOWAS is theoretically going to suspend sanctions, and will contemplate sending aid to assist with the Touaregs. The coup lasted all of what - two weeks? Fail. But at least Randgold's gold-mining operations weren't affected. Nice. Link: Mali Junta to Relinquish Power.
4. RIM has announced that sales of blackberries to US Federal Agencies are rising. That should save it. The argument is that because their subscriber base has remained stable, and because the US Federal employee base is shrinking, the situation implies that they're increasing market share. Forgive me - but that is hardly "increasing sales". And that sounds like "grasping at straws" if ever I heard it. Goodness me. Either way - I hope they're not selling to the US government on credit... Link: RIM says sales to US Govt "increasing".
5. And the African Business News in brief. The highlights:
• World Bank Candidate from Africa, Dr. Ngozi Okonjo-Iweala, faces the World Bank panel of interviewers today. Link: click here.
• The tension between the Sudans is threatening Chinese investments in the region. Link: click here.

And that's all for now.

Have a good day.

Daily News Roundup 2012: Thursday 5 April

Good morning

The headlines:

1. In Eurozone news, the pressure is properly hyping around Spain. This after the near-tragedy of Spain's debt auction yesterday. Spain sold 2.59 billion euros worth of bonds in the auction - which was just above the minimum amount that it had planned, but well below the maximum of 3.5 billion. At the same time, average bond yields have increased by almost 100 basis points since last month's sale (on 5 year benchmark bonds). What does all this mean? Well I often hear the non-finance friends (and some of the finance-type friends as well, if I'm honest), shaking their heads at these governments taking on more debt. And I remind them that they are likely not taking on more debt so much as "rolling" old debt. And by that, I mean that loans have time limits. As those time limits fall due, you can either repay the loan, or take out a new loan to repay the old one: leaving your debt position unchanged. Unfortunately, if investors are worried about the fiscal deficit that you have going (government spending more than it generates in revenue), and especially about your shooting past the EU fiscal deficit ceiling of 3%; well then they're not going to want to buy your bonds. Unless they're cheap. And in bond terms, "cheap" means that your bond is offering a higher yield than a similar one (just one of better credit quality). Hence the rise in yields. But as it gets more expensive to borrow, it means that you need to borrow more in order to repay your old loans, cover you fiscal deficit, AND cover the new higher interest cost. Cue: vicious cycle. And now, some of the local administrations in Spain have been shut out of capital markets, and therefore prevented from refinancing their debts. This means that the government has to carry them - and then, more pressure. Ay ay ay. Link: Rajoy says Spain in "extreme difficulty".
2. Almost immediately after the news above, Mario Draghi (European Central Bank president) said that talks of the ECB withdrawing its support from the euro-area banks are "premature". Draghi is under pressure to "exit" (ie. withdraw the ECB support), as the 30% increase in the ECB's asset base (ie. the credit it has extended - which becomes an asset to the ECB as it is now owed the money back) is threatening to cause inflation in the Eurozone above the 2% target for the region. Link: Draghi: No ECB exit.
3. In more fun news, there is some JP Morgan scandal around dealmaker Ian Hannam (JPM's Global Chairman of Equity Capital Markets), who resigned on Tuesday after being fined by UK regulators for trading on inside-information. I'd make some comments, but there is an awesome blogpost by my new favourite blogger Matt Levine on the topic. He actually uses the phrase "unspeakably awesome". I am in awe. Link to ML's post: A Word by the unspeakably awesome Matt Levine. And here's the Bloomberg Link: Hannam in the Eye of the FSA Storm.
4. Gold traders are apparently bearish for the first time in 2012. This is after the Fed dampened hopes of more stimulus measures (means less flocking to buy gold in panic), and jewellers in India (the world's biggest bullion market) go on shut-down strike to protest a new tax. According to the Bombay Bullion Association, Indian imports of gold have plunged by 81% in March as Indian jewellers remained shut for their 19th day. Indian jewellers apparently sell more gold than the Australian and US mines combined can produce in a year (and Australia and the US are the largest gold producers after China, apparently). The tax under protest is a 1% excise dute on non-branded gold ornaments. Crazy. However - the Austrian Economists will tell you that the real use of gold is as a store of value, so the decorative side is less relevant. On the other hand, Indian weddings. Link: Gold Traders Bearing up under Pressure.
5. And the African Business News in brief. Link: ABN Briefs. The highlights:
• The Zimbabwean Government is looking into complaints from the Mining Industry that new mining taxes will take 60% of every dollar the mines make. Generally, the Zimbabwean Government seems to react against complaint, rather than in favour of it. The dice are spinning.
• Kenya held its key lending rate constant at 18%.
• South Africa's Department of Energy "to review the mechanism used to set the country's fuel prices".

That's all for now.

Have a good day.