Chancellor lets Branson buy NorthernRock - Good or Bad for Taxpayers?

Branson attempts to make a "silk purse out of a sow's ear", by paying £747m cash for the bank, a third of which will be funded by the state. Branson's Virgin Money is investing together with Stanhope Investments, a unit of the Abu Dhabi national fund. The deal comes 5 months after UK finance minister George Osborne (aka Chancellor of the Exchequer), who studied Modern History at Oxford, put N-rock up for sale.

A word on the role of the Chancellor..it is one of the FOUR Great offices of State, which comprise, the Prime Minister, the COTE, the Foreign Secretary and the Home Secretary.

James Callaghan (PM: 1976-1979) is the only person to have served in all four offices. Prior to PM he was Chancellor (1964-1967) wrestling with BoP deficit and speculative attacks on GBP. He was ousted by Maggie Thatcher's Conservatives in 1979 following the "winter of discontent".

UKFI (UK Financial Investments) manages government stakes in bailed-out banks, established shortly after the collapse of Lehman Brothers. Sir David Cooksey (creator of Advent) joined as Chairman the following year, his background is both engineering and financial entrepreneurship.

"Super Mario" Monti steps up to Italian plate

Mario Monti, a former EU commisioner (who earned a reputation as an attacker of monopolistic visions and vested interests, e.g. blocked the merger between GE and Honeywell in 2001), is stepping into the space left by Silvio Berlusconi (owner of A.C. Milan), and forming the next Italian cabinet. Mario studied at Bocconi in Milan and Yale (a very old college founded in 1701), under James Tobin (Nobel Prize, 1981).

3Q 2011 Profits are "Turning Point" for BP

3Q profits came in at $5.14bn - near tripling of the replacement cost profit in same period 1 yr ago."Replacement cost profit" is an accounting practice for reporting profits in the oil industry. BP is still paying for the cleanup in the Gulf of Mexico and compensating victims.

MS Debt More Risky than Bank of America, says CDS

495 basis points is the highest level it's been in 2.5 years, implying a cost of $495,000 a year to insure $10m of Morgan Stanley bonds for 5 years (more expensive than Bank of America). At 500bps premium, bonds are regarded to have junk status, say Markit. Shares in MS fell 10% to $13.51. The main driver for the concerns is MS' exposure to European bank debt, in particular France.

Nat Gas trading around $3.87

Price is per MMBTU (per million BRITISH thermal units - the MM being a legacy of Roman times when M denoted 1,000. Hence MM is one million or one thousand times one thousand). Look how Natgas futures on NYMEX are doing here.  ONE BTU is roughly 1,055 Joules, so 1 MMBTU must be a BILLION JOULES.

Recap question: When is a million equal to one billion?  Answer: when converting MMBTU into Joules. 1 MMBTU (million BTUs) is one billion Joules.

Standard contract size for Henry Hub natural gas is 10,000 MMBtu.

We can think of energy also in terms of light. A 100 Watt light bulb consumes 100 Joules/second.  in one minute, consume 6,000 Joules, roughly 6 BRITISH THERMAL UNITS.

HPQ the world's largest IT company by revs, buys Autonomy

Fiscal 2010 revenues of HPQ was $126 billion, making it the world's largest IT company (number 11 in Fortune 500). How long it will remain so depends on management's progress in plans to break up the company.

HP is paying £25.50 per share for Autonomy for all outstanding shares (valuing the company at around £7bn) - a transaction recommended by its Board of Directors. Autonomy has been the subject of bid speculation before (September 2010, when the shares rose 4% when the FTSE was flat, and Microsoft and Oracle were flagged as possible bidders).

Funds seem to react to the move, switching more allocations to tech stocks, interpreting the takeover as a sign of increased M&A activity in the sector. ARM, Microfocus and Blinkx (video search engine) also saw their share prices rise.

References:
The UK takeover code can be found here.

SNB on Intervention Spree as EURCHF heads to 1.0

The SNB has needed to intervene in currency markets to halt appreciation of the Swiss franc (CHF in ISO-speak, or "Schweizerfranken" / "Franken"). Amongst other things, it makes Swiss exports less competitive ("menacing for the export sector" might be one way to express it), detracts tourism (or at least deters tourists from spending) and reduces the value of the SNB's reserves in Swiss francs.

The cause for the recent appreciation has been capital flight into "safe haven" CHF, owing to the US downgrade. The Greek crisis also spurred the acceleration of the CHF.

SNB in 1978 purchased 10.6bn CHF (6.6% of GDP) of foreign currency to weaken the franc, following which the CHF relaxed - a resounding success. At the time, the bank had an explicit exchange rate target against the Deutschmark.

Double Debt Crisis Emergency Talks: US is AA+

Sunday is a day of conference calls for finance officials as the twin debt crises of Europe and the US gets discussed, urged on by S&P's downgrade of US debt rating from AAA to AA+. The US Treasury has retorted with a headline called "the $2trillion mistake" regarding S&P's analysis.

Last week the US avoided sovereign default by raising the debt ceiling. But what is the debt ceiling anyway?

The US Constitution gives Congress the sole power to borrow money on the credit of the United States. Right from founding of Congress to 1917, each debt issuance had to be authorised separately. To provide more flexibility in financing from WWI onwards, the concept of "debt ceiling" was introduced, basically limiting the total value of bonds that could be issued.

The largest holders of US debt are China, Japan, UK and Brazil.

Obama Signs New Debt Bill into Law

Obama has increased the US debt ceiling!!! Senate voted in favour, 74 votes to 26 (74% yes)!

Closure of the News of the World

10 July 2011 - the final edition of the News of the World is printed. The 168 year old newspaper is no more, following revelations of the paper's involvement in phone hacking since 2002. A slogan from the paper in 1910 reads: "Contains more news than any other paper".

NatGas 8.1% Flash Crash in Futures on 8 June

Could electronic algos be to blame for clsoing the New York Mercantile Exchange floor for more than five hours when late Wednesday, when Nymex July natural gas dropped 39 cents, or 8.1 per cent, to $4.510 per million British thermal units?? After a few seconds, it bounced back up but the damage was done - anomalous price move registered.

In the US natgas has risen 15 per cent in the past month, nearing a one-year high of $5 per mBtu, as people switch on their air-cons in the hot weather and power plant masters boost output accordingly.

Copthall Avenue's Rencap enters US equity derivatives business

Rencap has hired Leonard Ellis in New York to lead Equity Derivatives and Structuring out there, picking him up from Capstone where he focused on idea- and event-driven volatility strategies. Ellis also managed equity derivatives at Citi, covering equity swaps, DMA, delta one and exchange market making.

Glencore IPO creates money for management and banks

The FTSE 100 will welcome the world's largest commodities firm (by revenue: 2010, $145bn) to its ranks, around May 24, 2011, on its first day of unconditional trading.

Glencore did its primary listing in London, selling 1.14 billion shares @ 530p, and secondary listing in Hong Kong, at 66.53 HKD (around 530p as well). Shares rose 11p to 541p in the first day of trading. At the 530 offer, Glencore has a market value of £36.7 billion.

Ivan Glassenberg, CEO since 2002, studied accountancy at the University of Witwatersrand in South Africa and got his MBA from University of Southern California, and will have a paper fortune of around £6bn following the flotation, being the owner of 15% of the company. Glencore was founded by Marc Rich (real name Marcell Reich) who started his career at Phibro (then known as Philipp Brothers, a firm founded in 1901) and is credited in a book as having created the spot market for crude oil.

Microsoft to Buy Skype for $8.5bn

The End of Crazy Acquisitions for BoA?

Ken Lewis, BoA's architect of disaster mergers, the last of which was Merrill Lynch, has been gazoomf'ed by his scion Brian Moynihan who has declared "NO MORE DISASTER MERGERS". Adding to the theme of no more acquisitions, he surmised: "We do not need anything".

Oracle's Java Brain Drain

Father of Java, James Gosling, along with other esteemed engineers like Tim Bray, have resigned from Sun following its purchase of Oracle. Why did Oracle let them leave?

Gosling is now Chief Software Architect at a company called Liquid Robotics (press release Aug 30, 2011) based in Sunnyvale, CA, who develop the Wave Glider (R) unmanned ocean vehicle.Tim Bray, who grew up in Beirut,  is now developer advocate at Google.

Hitachi says Bye Bye Disk Drives

Hitachi sold its disk drive unit to Western Digital for the sum of (around) $4.3.bn, causing a 2.18% rise in Hitachi's stock price (its peer Sanyo rose 2.4% on the news). The combination of Hitachi's HDD unit and Western Digital will make WD (hq'ed in California) the company with the largest global market share for hard disk drives (50% according to IDC), the next-in-line being Seagate STX with 29% market share (they own the Maxtor brand). The remaining share is held by Toshiba and Samsung.

The acquisition of HGST (Hitachi Global Storage Technologies) gives WD control over a large portfolio of global assets including the Hitachi San Jose Reseach Center and manufacturing plants in Shenzhen, China (substrate manufacturing is done in Sarawak, Malaysia - substrate (common examples, being aluminium and glass) is what is used to create the platter in the disc drive  - the core internals of the disk drive consisting of several layers of platter on a spindle).

Hitachi was set up in 1910 as a product company specializing in electrical engineering. Its first product was an induction motor (used in many household appliances). They went on to produce a bunch of electrical products, including transformers, ammeters and voltmeters. Their involvement in appliances (washing machines and refrigerators) It was founded by Namihei Odaira, an electrical engineering graduate who worked for several engineering companies before founding Hitachi around the age of 36, following his interest and research in developing induction motors.

Dodd-Frank Prods Morgan Stanley PDT.exit()

Morgan Stanley will close its PDT group and revive it in the shape of PDT Advisors by the end of 2012. It expects the full staff of 60 to join the new firm.

Dodd-Frank Prods Goldman to GlobalMacro.exit()

Global Macro trades everything under the financial sun: currencies, stocks, interest rate products, and will now shut down in deference to the Volcker Rule, one component of Dodd-Frank approaching in July 2011. Last year, Goldman also shut down its Principal Strategies Group run by Pierre Henri Flamand, who then started Edoma Capital (reported to have raised over $1bn).

Question Marks over the Dominance of the USD

For 100 years, the American dollar has been the world's dominant financing currency, recently challenged by the Euro. In the last 10 years, the dollar has fallen to 60% of FX reserves held globally with Euros at 25%, 15% in other currencies. If the renminbi becomes fully convertible and dispenses capital controls it would become the world's third global currency. Capital controls limit the flow of money into and out of a country. China allows inflow in the context of FDI (i.e. long-term investors) whereas it restricts the purchase of Chinese financial assets. Restricting purchase of currency to restrict purchase of financial assets, restricts the appreciation of the currency. Capital controls can be seen as an alternative to quantitative easing and intervention.

Should the US sell ultra-long (100 year) bonds?

The longest bond issued by the US Treasury has a maturity of 30 years and the average maturity of outstanding debt is 5 years (59 months).

However, the TBAC (Treasury Borrowing Advisory Committee) has discussed selling "ultra-long" maturity bonds with up to 100 year maturity, to exploit low borrowing costs. Who would invest in such low-yielding paper? It is argued long-term investors like pension funds and insurance companies...but wouldn't they also want to see a return?

France, China and the UK have sold 50 year debt.

The benefits to the US Treasury would also include diversification of its investor base beyond the largest investors, foreign central banks, thus "reducing funding risk".

In Lehman news, it has been reported that Bernanke on 14 Sept 2008 wrote in an email: $12bn plus Fed liquidity support would not be enough (to keep Lehman afloat). On 9 Sept 2008, the Liquidation Gameplan was distributed, highlighting: "Lehman is bigger and more global than Bear Stearns".

Estonia Counts In on the Euro

Estonia is now the 17th member of the Eurozone. PM Andrus Ansip said what was a small step for the Euro was a big step for Estonia.