According to S&P all sectors performed poorly in 2008. The least worst sector was consumer staples which was down 18%. Biggest winner on S&P in 2008 was consumer staples firm Family Dollar Stores (NYSE: FDO). This was the worst year for the S&P since 1931, the middle of the Great Depression.
Citi's bosses said top execs won't take bonuses. They also sold off their Global Services Business to TCS for $512m. KBC announced it would not pay any bonuses in 2010 for earnings in 2009. KBC received 3.5bn EUR government aid in October, together with Fortis, Dexia and ING.
FTSE Trading closed at 12:30 GMT for Wednesday 31 Dec 2008. Its value was 4,434 points, down from 6,457. HBOS and RBOS have lost roughly 90% of their value. Whittard of Chelsea (formerly owned by Iceland's Baugur investors) has been sold over the Christmas period for an undisclosed sum to EPIC private equity partners (who are into MBOs and MBIs). They have 130 stores selling tea, coffee and crockery. Overexpansion? Bad outlets? You decide.
Wednesday, 31 December 2008
Tuesday, 30 December 2008
Public Sector Borrowing and its impact on FX rates and CDS prices
GBPEUR
In the FX markets, December saw the GBP trading at parity with the EUR, its worst performance yet this year but a price target predicted by analysts in a self-fulfilling prophecy. Alastair Darling's remarks earlier in the year accelerate the sell-off.
GBPUSD
In July sterling was trading at $2, then dwindled to $1.50. Why? Partly Britain's public finances - the Treasury's pre-Budget report forecast UK public borrowing will rise to £78bn for 2008-09 and then to £118bn in 2009-10 (8% of GDP). These figures though are not consistent with data from the ONS.
Analysts point out a high level of government borrowing tends to spell trouble for sterling. A post-war high was reached in 1974-75 (6.9% of GDP), which led to Britain asking the IMF for emergency funding in 1976. The Treasury's counter is that it believes the recession will be shallow and brief. The UK has been running a deficit since 2002/2003.
The CDS market for sovereign debt has indicated the cost of insuring default by the Treasury on its gilts over 5 years has reached 100bps over Libor (7.2 bps a year ago). Analysts CEBR announced (speaking about the recession across Europe): "The United Kingdom economy is likely to be the hardest hit by the credit crunch due to its reliance on consumer borrowing and the financial sector for growth".
But who is trading in the sovereign CDS market and why? BoA research provides some answers.
In the FX markets, December saw the GBP trading at parity with the EUR, its worst performance yet this year but a price target predicted by analysts in a self-fulfilling prophecy. Alastair Darling's remarks earlier in the year accelerate the sell-off.
GBPUSD
In July sterling was trading at $2, then dwindled to $1.50. Why? Partly Britain's public finances - the Treasury's pre-Budget report forecast UK public borrowing will rise to £78bn for 2008-09 and then to £118bn in 2009-10 (8% of GDP). These figures though are not consistent with data from the ONS.
Analysts point out a high level of government borrowing tends to spell trouble for sterling. A post-war high was reached in 1974-75 (6.9% of GDP), which led to Britain asking the IMF for emergency funding in 1976. The Treasury's counter is that it believes the recession will be shallow and brief. The UK has been running a deficit since 2002/2003.
The CDS market for sovereign debt has indicated the cost of insuring default by the Treasury on its gilts over 5 years has reached 100bps over Libor (7.2 bps a year ago). Analysts CEBR announced (speaking about the recession across Europe): "The United Kingdom economy is likely to be the hardest hit by the credit crunch due to its reliance on consumer borrowing and the financial sector for growth".
But who is trading in the sovereign CDS market and why? BoA research provides some answers.
Monday, 29 December 2008
Buffetology
Warren Buffett, CEO of Berkshire Hathaway and "Sage of Omaha", has a science named after him. It's called Buffetology.
"I don't worry too much about pointing fingers at the past. I operate on the theory that every saint has a past, every sinner has a future."
"I buy stocks when the lemmings are headed the other way."
"If calculus or algebra were required to be a great investor, I'd have to go back to delivering newspapers".
Buffett made his first investment at age 11.
Wednesday, 24 December 2008
The EUR yield curve shows falling yields
Dec08 has seen a flattening of the long-end of the EUR yield curve (term structure of interest rates for EUR) as shown from the ECB's animation. The bond price data comes from EuroMTS Ltd (a pan-European government bond trading platform). They publish a yield report showing e.g. yield on 2year and 5 year government bonds for Austria, Belgium , Finland, France etc.
Statistical data from the ECB can be found here.
Statistical data from the ECB can be found here.
Tuesday, 23 December 2008
Creation of a Gas "OPEC" In Doha Sparks Controversy, Tangan nods towards Sinopec and Gazprom on the Warpath
Russia, the world's top gas exporter (and largest country in the world in terms of land area; over 17 million sq km, almost twice the size of the United States at 9.8 sq km), hosts the GECF forum for gas-producing countries (including Iran, Venezuela (a country borne from the collapse of Gran Colombia, the short-lived South American republic named after Christopher Columbus, in 1830) and Qatar), and proposes the creation of a permanent organization in Doha, Qatar, similar to OPEC. In the forum, Vladimir Putin announced "the era of cheap gas is coming to an end".
Russian state-owned Gazprom claims it is owed $2bn (£1.3bn) by Ukraine for gas supplies. This creates supply risk for the rest of Europe since 80% of Russia's exports go via Ukrainian pipelines to the rest of Europe. Gazprom is also nearing a deal to win a controlling stake in Serbia's state-owned oil monopoly Petroleum Industry of Serbia (NIS) and exploiting Siberian reserves in the Yamal Peninsula (the so-called "Yamal Megaproject"). Siberia has a population density of 3 people per square kilometre.
Venezuela is unique in that it has the world's largest reserves of heavy crude oil (which has a higher specific gravity (read density) than "conventional" crude) located in the Orinoco river ("Rio Orinoco"). Heavy crude is often priced at a discount to light crudes, due to high refining costs in the downstream processing. The field of reservoir engineering deals with the economic retrieval of hydrocarbons.
Reuters report here.
In other oil and gas events, the bid of Sinopec (China Petroleum and Chemical Corporation) for the Canadian Tanganyika Oil Company has been given a thumbs-up from Tangan's Board of Directors.
Russian state-owned Gazprom claims it is owed $2bn (£1.3bn) by Ukraine for gas supplies. This creates supply risk for the rest of Europe since 80% of Russia's exports go via Ukrainian pipelines to the rest of Europe. Gazprom is also nearing a deal to win a controlling stake in Serbia's state-owned oil monopoly Petroleum Industry of Serbia (NIS) and exploiting Siberian reserves in the Yamal Peninsula (the so-called "Yamal Megaproject"). Siberia has a population density of 3 people per square kilometre.
Venezuela is unique in that it has the world's largest reserves of heavy crude oil (which has a higher specific gravity (read density) than "conventional" crude) located in the Orinoco river ("Rio Orinoco"). Heavy crude is often priced at a discount to light crudes, due to high refining costs in the downstream processing. The field of reservoir engineering deals with the economic retrieval of hydrocarbons.
Reuters report here.
In other oil and gas events, the bid of Sinopec (China Petroleum and Chemical Corporation) for the Canadian Tanganyika Oil Company has been given a thumbs-up from Tangan's Board of Directors.
Wednesday, 17 December 2008
Fed Slashes Rates to Near-Zero
US Fed cut its rate target to a range of 0-0.25% from 1%, a drastic measure championed by Ben Bernanke to stave off the impact of recession. This brings the overnight lending benchmark rate, the Federal Funds Rate, to its lowest ever. Note that the Fed has specified a range of rates, not an exact rate. This may suggest they are unable to control tightly the market interest rate any longer.
The Fed is combining the rate-cut strategy with buying up bad assets from banks. The last time something as drastic in terms of policy shift has been done by the Fed was 1979, under Paul Volcker (MA Political Economy, Harvard). A that time the Fed initiated a severe recession while trying to fight the inflation which had built up in the aftermath of the Vietnam War, which ended in 1975.
The Fed is combining the rate-cut strategy with buying up bad assets from banks. The last time something as drastic in terms of policy shift has been done by the Fed was 1979, under Paul Volcker (MA Political Economy, Harvard). A that time the Fed initiated a severe recession while trying to fight the inflation which had built up in the aftermath of the Vietnam War, which ended in 1975.
USD falls to record low versus JPY
The JPY reached a 13 year high versus USD at ¥87.24 to the dollar, following the Fed's rate cut to historic lows. Since mid-Sept, the yen has gained 15% against the dollar. This is bad news for Japenese exporters, like consumer electronics giant, Panasonic, which has slashed its profit forecast by 90%. Panasonic have recently come up with a new model of laptop, the "ToughBook".
Monday, 15 December 2008
Madoff Makes Off with $50bn Making Investors Mad
Bernard Madoff, it has been alleged, ran a $50bn Ponzi scheme (named after Charles Ponzi, who emigrated to the United States from Italy in 1903). If found guilty, this is will be the biggest Ponzi / pyramid scheme in history. The SEC described it as a "fraud of epic proportions".
US hedge fund Tremont Group Holdings, had a reported $3.1bn exposure to Madoff.
The idea of a Ponzi scheme is to pay high returns by passing subscriptions in to existing clients rather than putting them into a portfolio, a strategy that results either in complete collapse or bailout.
Madoff claimed he was using a "split strike conversion" strategy to generate his returns. In fact he was faking his trades in an IBM AS/400 computer. Madoff also ran a London operation MSIL, or Madoff Securities International Limited. Madoff was an ex-non-executive chairman of Nasdaq.
US hedge fund Tremont Group Holdings, had a reported $3.1bn exposure to Madoff.
The idea of a Ponzi scheme is to pay high returns by passing subscriptions in to existing clients rather than putting them into a portfolio, a strategy that results either in complete collapse or bailout.
Madoff claimed he was using a "split strike conversion" strategy to generate his returns. In fact he was faking his trades in an IBM AS/400 computer. Madoff also ran a London operation MSIL, or Madoff Securities International Limited. Madoff was an ex-non-executive chairman of Nasdaq.
KKR Creates Asset Management Division to Exploit Market Turmoil
Private equity / "alternative asset" specialist KKR (founed by Henry Kravis and George Roberts in 1976) have announced the creation of a new asset management division.
KKR's original business model was using junk bonds to buy underperforming companies, rework the balance sheets and sell on for profit. This is the idea of the "leveraged buyout". Their most famous transaction was the LBO of RJR Nabisco in 1989 for $25bn, the storyline behind "Barbarians at the Gate".
KKR's original business model was using junk bonds to buy underperforming companies, rework the balance sheets and sell on for profit. This is the idea of the "leveraged buyout". Their most famous transaction was the LBO of RJR Nabisco in 1989 for $25bn, the storyline behind "Barbarians at the Gate".
Tuesday, 9 December 2008
Movie Derivatives: The "Hollywood" Stock Exchange
Cantor Fitzgerald (slogan: Dynamic. Driven. Innovative. Focused) applied to CFTC to launch a derivatives market for box office receipts contracts. This sounds a bit like the Hollywood Stock Exchange! Here's a beginner's guide to the HSX.
Monday, 8 December 2008
US giant Tribune files Chapter 11, Tough Year for Media
The Tribune, owners of LA Times and Chicago Tribune, filed for Chapter 11 ("reorganization") bankruptcy (which allows the firm to remain in business, as opposed to a Chapter 7 or "liquidation" bankruptcy) having struggled with $13bn of debt it took on when going private last year. The go-private deal was led by Sam Zell, a real-estate billionaire. The Tribune was first published in 1847. A primer on bankruptcy basics in the US is detailed here.
Overall 2008 has been a tough year for media companies. Apart from the Tribune, Scotland's Herald, Sunday Herald and Glasgow Evening Times announced a merger of their editorial teams, and the Independent is moving in with the Daily Mail to save money on rent. One spark amidst the gloom, reports City AM, is the niche publisher Future, whose 2008 pre-tax profits were up 27% to £9.5m. Reports CityAm "Futures magazines are ...managing to pull in advertising because they focus on the niche. If a consumer is buying an Xbox or mountain biking magazine, the chances are they're going to buy some of the gear that's advertised inside". "We are producing content for absolute enthusiasts" said CEO Stevie Smith.
The UK's insurance sector, it has been reported, is doing well despite the credit crisis. Insurance (excluding brokers and auxiliary professionals) represents 1% of UK GDP employing 325,000 people. Figures from Swiss Re indicate the UK is the largest insurance centre after the US, with Japan coming in third place just above France.
Overall 2008 has been a tough year for media companies. Apart from the Tribune, Scotland's Herald, Sunday Herald and Glasgow Evening Times announced a merger of their editorial teams, and the Independent is moving in with the Daily Mail to save money on rent. One spark amidst the gloom, reports City AM, is the niche publisher Future, whose 2008 pre-tax profits were up 27% to £9.5m. Reports CityAm "Futures magazines are ...managing to pull in advertising because they focus on the niche. If a consumer is buying an Xbox or mountain biking magazine, the chances are they're going to buy some of the gear that's advertised inside". "We are producing content for absolute enthusiasts" said CEO Stevie Smith.
The UK's insurance sector, it has been reported, is doing well despite the credit crisis. Insurance (excluding brokers and auxiliary professionals) represents 1% of UK GDP employing 325,000 people. Figures from Swiss Re indicate the UK is the largest insurance centre after the US, with Japan coming in third place just above France.
Sunday, 7 December 2008
A Primer on Political Economics with Patten
Chris Patten on the BBC talks about the many flavours of capitalism, starting with Western liberal democracy and its differences with a Leninist model of capitalism or protocapitalism, if you will. Lenin was famous for his role in the Russian Revolution of 1917, replacing the Tsarist autocracy of the Russian Empire and the founding of the Soviet Union.
An interesting political economist is Francis Fukuyama, former analyst at RAND corporation, who wrote the book "The End of History" (read a summarising article here). A background on the development of capitalism since the Middle Ages is detailed here.
Interesting programs on political economics include Stanford's GSB PhD program.
The first law of economics: things that can't go on forever, don't.
60-second spiel on how to improve the world.
An interesting political economist is Francis Fukuyama, former analyst at RAND corporation, who wrote the book "The End of History" (read a summarising article here). A background on the development of capitalism since the Middle Ages is detailed here.
Interesting programs on political economics include Stanford's GSB PhD program.
The first law of economics: things that can't go on forever, don't.
60-second spiel on how to improve the world.
Wednesday, 3 December 2008
Fed's Beige Book Shows Further Weakening of US Economy
The Beige Book, a report published eight times a year, showed further weakness in the US economy for November, with falls in retail and vehicle sales. All the Fed's districts send in data covering everything from sale of electronics goods to gasoline prices and discounting behaviour. Vacancy rates for commercial property in NY and SanFran increased but results in the city of St Louis were mixed.
Monday, 1 December 2008
Not what I have, but what I do, is my kingdom - Thomas Carlyle
Thomas Carlyle was a Scottish historian famous for his two-volume work on the French Revolution.
hq(_CarlyleGroup, X). ? X = washingtondc. employees( _CarlyleGroup, 500).
investments(_CarlyleGroup, X). ? X=freescale. X=flexcom. X=indigosystems.
origin(flexcom, X). ? X=korea.
m8 :- merger(_CarlyleGroup, _BoozAllen, JUL08, DV). ? DV=usd(2.54bn).
advisor( m8, _BoozAllen, X). ? X=csfb.
hq(_CarlyleGroup, X). ? X = washingtondc. employees( _CarlyleGroup, 500).
investments(_CarlyleGroup, X). ? X=freescale. X=flexcom. X=indigosystems.
origin(flexcom, X). ? X=korea.
m8 :- merger(_CarlyleGroup, _BoozAllen, JUL08, DV). ? DV=usd(2.54bn).
advisor( m8, _BoozAllen, X). ? X=csfb.
UK High Street offers Opportunities for Retail Investment Bankers, Celebrations Pounced on by Card Factory
The Icelandic invasion of the British high street is under threat as investments turn sour for Icelandic giant Baugur, which controls House of Fraser, Hamleys ("the finest toys in the world"), Iceland, Whittard of Chelsea as well as having minority stakes in Debenhams PLC, Woolworths (12.4% stake via Unity Investments), French Connection and an 8.6% interest in Saks. Cheap Icelandic financing enabled Reykjavik-based company Baugur to expand into the UK and US. Woolies shares were suspended last week following talks of a sale. Retail billionaire Sir Philip Green, who bought a £6.7m for a stake in Moss Bros (which owns the Moss and Cecil Gee brands) from Baugur in November, and sold it a few days later for a £1m profit, is reported to be prowling for more assets (and liabilities, potentially taking over £1bn of Baugur's reported debt).
Menswear retailer Moss Bros said it will cut costs in the face of a "challenging" trading environment. Celebrations Group, the card-retailer, went into insolvency in October. Kroll Limited have been appointed as Administrators. Card Factory have bought over 80 stores.
More retail sector news can be found here: http://www.theretailbulletin.com/
Meanwhile, in the banking sector, new CEO of RBS, Stephen Hester, has announced a six month grace period for home loan defaulters. CSFB has also announced it is cutting 650 jobs in the UK, following a $1bn loss in Q3 2008. HSBC, "the world's local bank", said it will cut 500 UK jobs.
Menswear retailer Moss Bros said it will cut costs in the face of a "challenging" trading environment. Celebrations Group, the card-retailer, went into insolvency in October. Kroll Limited have been appointed as Administrators. Card Factory have bought over 80 stores.
More retail sector news can be found here: http://www.theretailbulletin.com/
Meanwhile, in the banking sector, new CEO of RBS, Stephen Hester, has announced a six month grace period for home loan defaulters. CSFB has also announced it is cutting 650 jobs in the UK, following a $1bn loss in Q3 2008. HSBC, "the world's local bank", said it will cut 500 UK jobs.
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