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.

Daily News Roundup 2012: Tuesday 31 January

It's important to start something new on the last day of the month. So I've been up for a bit, abused my iPad slightly, and I've decided on a hierarchy of news applications:

1. Bloomberg - obviously. However, Bloomberg is quite technical, and assumes a fair amount of pre-knowledge for anyone interested in doing this on their own.
2. CNBC - what a legendary news station. I recommend this one. All the essential stuff is covered. And it's really well-explained.
3. BBC - I've left out. I think Bloomberg and CNBC had it covered.

The Headlines that caught my eye:

Emerging Markets

• Emerging Markets post Bigger Gains than the US so far (CNBC). link: http://www.cnbc.com/id/46191756
• Starbucks to enter India (Reuters via CNBC) link: http://www.cnbc.com/id/46196917
• Tata Global surges after venture with Starbucks (Bloomberg) link: http://www.bloomberg.com/news/2012-01-31/tata-global-surges-after-venture-with-starbucks.html
• Asia Stocks, Oil Rise on Greek Debt Talks (Bloomberg) link: http://www.bloomberg.com/news/2012-01-31/asian-stocks-oil-rise-on-greek-debt-swap-talks-progress-aussie-advances.html

I'm not sure if it's come through, but I'm an emerging markets fan. The media tends to turn all our focus toward the financial woes of Europe and the United States - and we end up forgetting that there is literally a whole New World of investment opportunity. A New World that seems quite capable of sustaining itself (if it had to) without Europe and the US. For example, the trade flows between China and Africa have grown at record pace; and now, China is the biggest trade partner for most African countries (including South Africa I'm told - although I stand to be corrected).

As the US and Europe struggle, we're seeing Emerging Market funds post higher returns and large multinationals driving their products and franchises into the economies of Asia, Africa and Latin America. The Indian Economy, for example, is expected to generate economic growth of around 6.5% in 2012 - during an expected global recession! The thing to point out (in my mind) is that the debt markets of these economies are relatively unsophisticated - and many of these cultures have historical biases against debt and borrowings. This leaves them relatively-hedged in a financial 'world' that is struggling with its debt.

Europe

• EU Nears Confrontation Over Greek Rescue (Bloomberg) link: http://www.bloomberg.com/news/2012-01-30/eu-nears-confrontation-over-greek-rescue-as-portugal-poses-looming-threat.html
• Most Banks Tightening Credit to Europe - Fed Survey (Reuters via CNBC) link: http://www.cnbc.com/id/46192914
• Greek Bondholders May Face 70% 'Haircut': Source (The Associated Press via CNBC) link: http://www.cnbc.com/id/46191869
• Jim Rogers: No One Leaves the Eurozone This Year (CNBC) link: http://www.cnbc.com/id/46186447

I'm just a big fan of Jim Rogers' attitude: "I would love for them to say that OK it's a disaster and for banks and shareholders to say they'll take big losses. Everything would collapse and I would buy all the euros I could and all the stocks I could, but I don't think that is going to happen." Perhaps he's exaggerating to keep off all the speculators.

The key points:

1. Portugal seems to be heading in the same direction as Greece. Its bond issues have a "junk" status credit-rating, and credit-default swap spreads (that is, the cost of insuring the bond issues) imply around a 70% chance of default.
2. As the headline implies, US banks are withholding credit to their European counterparts.
3. 1 and 2 are strong signs that contagion would take place should Greece default.
4. Greek debt negotiations are still continuing - and the EU is increasingly frustrated by Greece's lack of success, and its failure to implement enough fiscal measures (ie. just not austere enough). Apparently, Germany suggesting a fiscal overseer, which basically would have put Greece under curatorship - but it seems that everyone reacted with shock.
5. The EU summit is set to ratify a new Fiscal Treaty (it was agreed on in December last year - but it still needs to be ratified) which is meant to act as a safeguard against further fiscal problems by imposing penalties on governments whose fiscal deficits exceed set limits (I think I read 3% of GDP).
6. EU leaders appear to be admitting that austerity is not enough to take Europe out of the fiscal crisis. This is quite interesting - as it marks a change in stance for a number of the more conservative countries, Germany being the most prominent. And honestly, it just makes sense: if I was facing bankruptcy, slowing my spending would not be enough. I'd probably have to take on a second job. And maybe sell off some assets. 

America (The United States thereof)

• Why Even 20-somethings Are Worried About Retirement (CNBC) link: http://www.cnbc.com/id/46146242

This was interesting because I think it demonstrates why it's necessary to have some kind of formal finance taught in schools. I think this will be a future blog post. 

• Jim Rogers: I Would Not Buy Facebook (CNBC) link: http://www.cnbc.com/id/46186936

Just because Jim Rogers had a lot to say yesterday. But agreed - buying hot stocks has been shown to be a bad buy. Much better to buy underrated stocks with good fundamentals.

• US Treasury Forcing Mortgage Principal Forgiveness (CNBC) link: http://www.cnbc.com/id/46193915

The reason that the US lost its AAA rating was because of its high fiscal deficit (very bad), as well as its bad asset book (after the subprime crisis, the bailout of the mortgage agencies, banks and insurance companies involved the US government taking on their bad assets). Now there is a plan to write these off (this is an election year, after all). I'm just concerned that decisions made during an election year tend to be short-sighted. But we shall see.

• Blackrock's Doll says Feds' QE3 is unlikely (Bloomberg) link: http://www.bloomberg.com/news/2012-01-31/blackrock-s-doll-says-fed-s-qe3-is-unlikely-in-contrast-to-pimco-s-gross.html

Quantitative Easing is always of interest to me - it comes back to the Inflation post: Quantitative Easing is just another term for monetizing debt. In measured and managed format, a relaxed monetary policy can stimulate an economy. But then a government walks the very fine edge of perception. Interestingly, the US Fed does not release official money supply data. This does make it hard to form expectations of future inflation - I would guess that's part of the reason for not disclosing those figures.

Post-script

• CEOs of Barclays, HSBC may keep bonuses (Bloomberg) link: http://www.bloomberg.com/news/2012-01-31/barclays-s-diamond-hsbc-s-gulliver-may-escape-hester-s-zero-2011-bonus.html

This is just linked to my post from yesterday. I'm sure Mr Hester will be planning a move soon - to a bank that's not state-backed.

What is: The Daily News Roundup

I decided that I should probably make an effort to post a little something everyday. While it's awesome to write longer pieces with something specific in mind, a little regularity never hurt anyone.

And as I thought about it while I was running this morning, I realised that the business news is an area that probably needs to be addressed. Every morning, I wake up, check facebook, greet the twitter following (usually with a picture from breakfast - today it was pork sausages), and start checking the news on the BBC app on my phone.

Now the BBC is awesome. But sometimes - sometimes I wonder about the way they decide on business news headlines.

For example, this morning, I read that RBS boss Stephen Hester has rejected a £1 million bonus. Someone important said something like "the game was up". The journalist got to use fun adjectives like "controversial". There were lots of quotes from various politicians about "doing the right thing" and "a sensible and welcome decision" and "now he can focus on getting back billions of pounds for the taxpayer". And then someone in Labour attacked the British Prime Minister for being weak and feeble because he didn't step in earlier.

So not really business news at all then. Just a business background for political saga.

Although sidebar - I think that the British Government's decision to step in was monumentally stupid. Obviously, the decision was populist - and it was made very clear that Mr Hester had bowed to political pressure (I believe the journalist got to use the adjective "enormous"). But why do I think that it's such a problem?

Incentives.

If a bank does not meet the remuneration standard set by the banking industry as a whole, your key personnel will be unhappy, and the good ones will leave. My vote is that Mr Hester will not be focusing on getting back billions of pounds for the taxpayer. If I were Mr Hester, I would be focusing on moving to another bank where I could collect my missing £1 million bonus. Immediately.

That may well be the topic of another post: "Why bonuses should be higher". I'll freely admit that I'm biased...

But getting back to the news: when I think about it, I've always struggled to relate the business news articles back to my day-to-day. News either has to be interesting or relevant. And honestly, business news isn't all that interesting - unless we politicise it (see above), or turn it into the Kardashians (see all news articles relating to the sex scandal of the former head of the IMF). So that means that the good stuff must be relevant.

The Daily News Roundup is going to be a commentary on what I'm finding relevant and interesting on BBC and Bloomberg. Not everyone will be interested - but this is largely for me. Because even with all the background, I still find myself reading about the bonuses and the sex.

After all - good scandal is fun.