The Big Picture |  |
- 10 Thursday PM Reads
- Bridgewater’s Dalio on Europe, Economy, Strategy
- Please call me “market economy” and I’ll hand out the petty cash
- Communication Through the Ages
- Paul Krugman – The Colbert Report
- The Battle Of The Rails
- Lessons of Lehman’s Collapse
- Bloomberg 50 Markets Summit
- The Lehman Brother Anniversary Bailout!
- The Current State of the Market in a Sea of Volatility
| Posted: 15 Sep 2011 02:30 PM PDT Today’s train reading :
What are you reading? > Source: John Sherffius
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| Bridgewater’s Dalio on Europe, Economy, Strategy Posted: 15 Sep 2011 02:19 PM PDT Ray Dalio, founder of Bridgewater Associates LP, discusses the European debt crisis, investment strategy and the global economy. He speaks with Erik Schatzker at the Bloomberg Markets 50 Summit in New York. Source: Bloomberg
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| Please call me “market economy” and I’ll hand out the petty cash Posted: 15 Sep 2011 12:00 PM PDT Please call me “market economy” and I’ll hand out the petty cash What’s in a name. Well, the Chinese are willing to hand over the keys to the petty cash box, in exchange for Europe deeming that China is a “market economy”. Clearly China is not a market economy, but if Europe plays ball, it strengthens China’s dealings with the US. In the US a number of Senators are considering some kind of Trade legislation re China not allowing its currency to rise faster. The Republicans seem to have heated up the anti China rhetoric. Al amusing stuff, but at the end of the day, Europe has got to get its act together fiscally and set up a coordinated Euro Zone fiscal policy. At that stage, the market will provide all the capital that Europe needs. However, until then…….Having said all of the above, I must admit that the Chinese are playing this game/current situation much better than the Europeans/US. I’m impressed, though I suspect it reflects dreadful US/European politicians as well; Food inflation in India has risen to 9.47% in the week ending 3rd Sept. There will be additional pressure to raise rates at the next meeting tomorrow. However, the Indian economy is slowing – there lies the dilemma. Analysts expect a 25bps hike; UBS announced that it has lost US$2bn in unauthorised trading (apparently equity trading in London), which will result in a 3rd Q loss. Pretty careless, especially given the size involved; Merkozy did there usual double act last night following their call with the Greek PM. Apparently, Greece is an integral part of the Euro Zone (oh yeah) and will not default (come on, get real). They also stated that they will continue to provide assistance, as long as Greece meets its commitments. The bottom line is that Greece should get its next tranche of aid, which will give European Governments a little longer to consider how to deal with their banks. They will then organise (hopefully) an orderly default, involving haircuts well over 75%. However, the sad truth is that Greece still has a primary deficit and has to cut back and get competitive. Its the only way, though will be painful. Can Greece deliver – unlikely. However, they have payed their cards, their bluff has been called and it’s now up to them; The ECB yesterday lent US$500bn to 2 unnamed European banks. Given that the cost is greater than current market rates, it is clear that these 2 banks could not raise US$ funding in the markets. However, the fact that it was only 2 banks, is actually quite positive – most, including myself, would have thought it would have been more; Moodys downgraded Credit Agricole and Soc Gen yesterday as expected – surprisingly not BNP, though the bank was kept on review. The truth of the matter is that French banks have far too many assets and too little capital. They will have to deleverage, even if they get more capital. Not good news for France; The ECB’s September report contained the same old rubbish, namely that inflation expectations “must remain firmly anchored” and will continue to closely monitor all developments. They say that liquidity is not a problem. All non standard measures (code for emergency lending to banks) were “temporary in nature” read will last years. They admitted that there were downside risks to growth. I wonder is there is an European equivalent of Gut Fawkes around, who can be successful. Wishful thinking on my part; The EU has reduced the Euro Zone’s 3rd and 4th Q GDP estimates – downwards to +0.2% and +0.1% respectively. Germany was reduced to +0.4% and +0.2% respectively. How, may I ask, does the Euro Zone get out of the current mess with such low growth?, particularly if the ECB does not cut rates immediately. Still a compete basket case; The Italians passed the E54bn austerity package which seeks to have a balanced budget by 2013 yesterday. Italian 10 year bond yields fell by more than double figure bps on the news. Still a long way to go; Pretty pathetic (in terms of demand) Spanish bond auction today in terms of results, though yields were marginally lower. The EU wants Euro Bonds, though Germany and Mrs Merkel (publicly) does not. In private, I believe she is thinking about it (certainly a view of my German chums – yes I have a number of German friends – for how much longer……), but will need to win a referendum following the ruling by the German Constitutional Court; The UK is to sue the ECB for writing rules that force businesses set up to clear Euro products in Euro Zone countries only. This provision is disgraceful and represents French, in particular, attempts to move financial services away from London. The EU was set up to avoid any discrimination. Clearly, the French (with German involvement) don’t quite understand this; UK August retail sales were down -0.2% MoM and unchanged YoY. Ex fuel, they were down -0.1% MoM and -0.1% YoY. Slightly worse than expected. Summary Apologies I was tied up yesterday so no blog. Interesting market yesterday. US markets rose ahead of the telephone conversation between Merkozy and the Greek PM and continued to rise. However, lost half its gains in the last 30 minutes, for no reason that I could understand. In addition, energy and the miners did not perform, surprisingly – they are today. Today, European markets are much stronger as were Asian markets. The Euro continues to strengthen. Brent is up quite a lot – over US$112, but Gold is down. I would expect this rally to continue into next weeks FED meeting//QE/Operation Twist statement ? and maybe a little longer as Germany will pass the EFSF legislation on 29th Sept. However, from October onwards, well…. Got to run. Have fun ~~~ Kiron Sarkar is a qualified UK accountant, Kiron joined the M&A dept of N M Rothschild in London. He was then appointed head of M&A of Rothschild (Hong Kong). On his return to the UK, he was a founding member of the Rothschild international privatisation team. Subsequently headed up the Central and Eastern European ("CEE") team – rated No 1 in 4 out of 5 years (Privatisation International). On leaving Rothschild, he worked as privatisation adviser to the UK Governments Know How Fund, which was established to advise Governments in CEE on policy, privatisation, economic, financial, regulatory and other issues. Subsequently European Head of Media, Tech and Telecoms at CIBC World markets. Following CIBC, Kiron advised on telecoms and energy deals in CEE.
Kiron has acted as a lead adviser in respect of over US$150bn of deals and has worked globally in both developed and emerging markets.
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| Communication Through the Ages Posted: 15 Sep 2011 11:30 AM PDT click for ginormous version
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| Paul Krugman – The Colbert Report Posted: 15 Sep 2011 11:00 AM PDT Barack Obama’s American Jobs Act – Paul Krugman Source:
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| Posted: 15 Sep 2011 09:00 AM PDT Similar to the Big Bank chart we ran on Monday, this graphic shows a series of mergers in the rail shipping industry over the past 50 years has led to the creation of four freight rail giants that now control 90% of all business. > Click to enlarge:
There are now only four that matter: CSX, Norfolk Southern, Union Pacific and Burlington Northern Santa Fe now take in more than 90% of the market. Click to enlarge: Source: Nicolas Rapp, September 13, 2011 The battle of the rails Hat tip: Flowing Data
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| Posted: 15 Sep 2011 08:30 AM PDT ~~~ Source:
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| Posted: 15 Sep 2011 07:03 AM PDT Heading out to the Bloomberg Conference; these are the events I plan on attending:
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| The Lehman Brother Anniversary Bailout! Posted: 15 Sep 2011 06:53 AM PDT Today is September 15 — three years ago, Lehman Brothers was allowed to do what insolvent companies are supposed to do — fail. Hence, it is only fitting that five (Intergalactic) Central Banks arranged a massive liquidity operation to banks. There will be “three dollar-liquidity providing tenders before the end of the year in a coordinated move to offset shortages of dollars at European banks and businesses.” Although this could be looked at as awful news — more economies and banks in such dire straights as to need yet another central bank bailout, moral hazard notwithstanding — the kneejerk response was relief. Dax is up 4%, US futures flipped positive, Dow now up 100. The key question is the another QE2, or a failed European TARP? More to come . . .
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| The Current State of the Market in a Sea of Volatility Posted: 15 Sep 2011 05:30 AM PDT The picture below really captures the volatility of the current market and how traders must remain detached like the Coast Guard cutter closely monitoring how the ship (market) is listing. When too many are standing on one side 9f the ship (market) due to fear certain events will take place, the safest short-term bet is usually the other side. The current market volatility illustrates this point. The real world is much more complicated, however, as we cannot see the ship and must guess how the bulk of the fast money is positioned. Are most traders bullish or bearish, long or short? And what is the probability the event they're betting on going to be realized in the near-term? Will Greece go to the drachma over the weekend? Will a French bank fail in the next week? Will Italy experience a failed bond auction? Will Angela Merkel announce Germany is leaving the Euro? In a loud emotional market it's not easy to maintain the discipline to ask: What is the event probability and how is the jet set positioned? This raises the real issue about trading and investing. Nobody but the crooks, who trade on inside information, knows the future for certain. George Soros says markets move from perception to reality back to perception and sometimes market perception can determine reality though destabilizing feedback loops. We believe this is the state of the current market. The markets fear a Eurozone sovereign default and that some banks are not adequately capitalized to weather such an event and there is potential for mass global contagion. Eurozone leaders tell us this is flawed perception and does not reflect reality. The markets are not listening, however, and reducing funding to those institutions, some, of which, were the largest financiers of the sovereigns who are also experiencing funding problems. The doom loop continues until it doesn't or until a comprehensive credible plan is announced. But this takes bold leadership. We hope the Germans understand this and do what it takes to restore confidence as the current state is unsustainable. If they don't, the ship will capsize and the fast money, which has the staying power to ride out the volatility, and the short selling traders the Eurocrats despise so much, will become rich betting on their incompetence. Stay tuned.
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