The World's Largest Oil Importer is China

In 2013, China overtook the United States as the world's biggest importer of oil, partly due to rising car sales. According to the EIA, oil demand in China exceeded supply by 6.3 million bpd vs. 6.1 million bpd in the US. Many analysts predict this trend will continue for some years e.g. Macquarie, Wood Mackenzie. There has also been speculation that oil may be priced in RMB although this raises questions over convertibility.

India is the world's fourth largest importer of crude oil. 30% of its refining capacity is concentrated in two refineries in Jamnagar, western Gujarat, owned and operated by Reliance Industries. However, in terms of raw crude oil production, the state of Rajasthan exceeds Gujarat.

Argentinia's YPF Agrees to Buy Bulk of LNG from BP

YPF will buy most of its LNG cargoes for 2014-2015 from BP, amounting to 5.57 million tonnes. The LNG will deliver to the Bahia Blanca import terminal, near Buenos Aires, the largest province in Argentina. For 2014, Argentina will pay around $15 per mmBtu.

Angela Merkel's Conservative Party wins a Third Term

Her party (CDU, Christian Democratic Union) took about 41.5% of the vote. She will retake here position as Chancellor of Germany (the German title of the head of government, also known as Bundeskanzler - Federal Chancellor). The CDUs principles are based on a school of political thought known as Christian democracy.

David Bonderman's Baby TPG Breaks into the (Bonded?) Warehouse Business

TPG Capital, founded by:

• David Bonderman, educated at University of Washington and Harvard Law School. He has developed the Bonderman's Program at the University of Washington for unstructured international travel and study. He lives in Texas, as befits the name of his firm.

has bought up a portfolio of warehouses across the European Union  from warehouse specialists P3 owned by Bahraini firm Arcapita. P3 has properties in both the EU and GCC. Arcapita's CEO is:

• Atif Abdulmalik, established Arcapita in 1997. He has a Bachelors in Accounting and Finance, from Saint Edwards University Texas.

Arcapita also has investments in technology companies, predominately in the United States.

Investec Preps $500m Aircraft Debt Fund

This is the latest initiative from Investec's aircraft financing team, led by Ramki Sundaram, former head of defunct company Air Deccan. Investec primarily operates in the UK, Australia and South Africa.

How much gas did the UK import in 1H2013 and where did it come from?

The UK imported a record 1tcf of gas in the first half of 2013 which was 9.3 percent above the same period the previous year. A key pipeline was closed in late March causing a price spike. 81% of imports come via pipelines from Norway and Holland, with just under 20% coming in the form of LNG primarily from Qatar and a small volume from Algeria.

In Algeria, the national oil and gas company, Sonatrach, dominates the hydrocarbon sector. Crude oil production in Algeria averaged 1.25 million bpd in 2012. (This is still less than the peak production in the UK which was 2.5 million bpd in 1986).

The Concept of Real Money

Real money is a slang term referring to pension funds, insurance companies and endowments -generally any fund that is non-leveraged. The idea being that hedge funds that operate on leverage have a "physical" capital which they then use to control much larger asset base through leverage.

Welcome to the Vertically Integrated World of Windows Phone! Microsoft Buys Up Nokia's Handset Business and Patents for 5.4 billion Euros; Elop to run Devices

A Confluence of Factors Led to this Deal - Starting with the Lumia Partnership

Nokia's market share has been declining and Microsoft wants expansion in the mobile space, and for this Microsoft is willing to pay over five billion euro in cash. 

This confluence of factors has caused Carolina Milanesi at Gartner to pronounce that the deal came at "the right time".

Microsoft and Nokia have had a mobile partnership over the last two and a half years in the form of the Nokia Lumia (which uses the Windows Phone operating system).

Key People Mentioned in the Deal Rhetoric:

Here is a multinational team responsible for managing the Microsoft+Nokia mobile initiative.

• Steve Ballmer (American) - has come on record that he does not intend any major geographic shifts in terms of moving people and teams. Well done Steve for engineering this deal and also reassuring employees by reducing potentially disruptive changes during the transition!
• Stephen Elop (Canadian), a Microsoft alumnus, and head of Nokia, now returns to Microsoft and will take charge of the "Devices" unit that includes Microsoft Surface.  He has a Bachelors in Computing and a Doctor of Laws from McMaster University, Hamilton, Ontario, Canada. Good luck Stephen in running the Devices division of Microsoft!
• Timo Toikannen (Finnish), from the Nokia side, will continue to lead the Mobile Phones team. He has a Master of Law from the University of Helsinki and King's College London and established legal operations for Nokia's mobile business in Asia-Pacific. He joined Nokia in 1995 and then joined the leadership team from July 2012, more than 15 years later.

BTG Pactual Builds up Commodities Presence

BTG Pactual, the Brazilian investment bank, headquartered in Sao Paolo, has set up two commodities businesses, BTG Pactual Commodities and BTG Pactual Commodities Holdings:

• Run by Ricardo Leiman, former CEO of Noble Group.  Good luck Ricardo in building out this new business.  (this begs the question who is the current CEO of Noble Group - this is Yusuf Alireza).
• Shon Loth, a metals warehousing expert, has also been brought in from Noble. Well done Shon, hope you can leverage your warehousing experience effectively at BTG.

Many of the staff are ex-Noble. BTG have apparently spent $300m to build up the business.

Could this be a great time to enter the business? In the wake of heavier regulation, several institutions have pulled back from commodities and revenues in the first half have fallen 25% in 1H 2013 at the top biggest banks. It's been 10 years since the Federal Reserve allowed banks to get involved in this business.

BTG Pactual is controlled by billionaire Andre Esteves, who joined BTG as an IT intern having studied mathematics at the University of Rio and traded through the period of Brazil's hyperinflation. Well done Mr Esteves for creating such a force to be reckoned with in the global banking industry.

Governors of Central Banks II

Brazil: Alexandre Tombini, has a PhD in Economics from University of Illinois, and Bachelors in Economics from the University of Brasilia. He is the head of the Banco Central do Brasil. The bank controls the economy via adjusting the SELIC rate (overnight borrowing rate), the SE standing for Sistema Especial.

Russia: The Russian Central Bank is led by Elvira Nabiullina who studied at Moscow State University. Its primary responsibility is to protect the stability of the Russian Ruble. It part-owns the Russian commercial bank Sberbank.

India: Raghuram Rajan (appointed in August 2013, for a three year term). BSc, IIT Delhi, Electrical Engineering, PhD in management from MIT in 1991. He has published a book called "Fault Lines" which won the Goldman Sachs Business Book of the Year Award in 2010. He was the former Director of Research at the IMF. While at the IMF he published a paper entitled: "Has Financial Development made the World Riskier?"

UK: Mark Carney, also Chairman of the Financial Stability Board (FSB), has a PhD in Economics from Nuffield College, Oxford and was formerly Governor of the Bank of Canada.

China: (People's Bank of China), Zhou Xiaochuan, since 2002. His wife, Li Ling, is a senior member of China's Ministry of Commerce. He has introduced reforms to recruit "sea turtles" (overseas Chinese with experience of real capitalist markets).

Goldman Sachs Trading Glitch Could Cost $100m says Bloomberg

Goldman Sachs bombarded the NYSE Amex Options market with unusual orders due to a software bug that affected tickers beginning with I, J and K. This happened Tuesday August 20th in the first 15 minutes of the open. The bug also affected trades on Nasdaq and ISE causing the Nasdaq to temporarily shut down options trading.

The Everbright Incident in China

The Everbright Incident

A glitch in Everbright Securities electronic systems caused a spike in China's CSI300 index, which tracks the largest listed firms in China (see below for more details on CSI300 and what stocks it contains). After the spike, share value of around $100bn was wiped off the index, in a single day. The firm now has a ban on proprietary trading for three months.  The firm itself stated that the glitch cost around $30m.

Background on Everbright

Everbright was founded in 1996 and is headquartered in Jing'an district, Shanghai (named after the Jing'an Temple).

Background on CSI300

Some of the larger firms within the CSI300 are Ping An Insurance Group, Citic Securities and Bank of Communications (one of the largest banks in China founded in 1908). Companies must be trading for at least three months on Shanghai or Shenzhen stock exchanges before even being considered for inclusion in the index.

CSI refers to China Securities Index Company Limited, who compile the index.

Rio Tinto Scraps Sale of Loss Making Pacific Aluminium

Introducing:

• Australian-born, Sam Walsh, the CEO of Rio Tinto (appointment January 2013)

Sam remarked that negotiations had not gone as smoothly as expected for the loss making unit, abbreviated PacAl. First half net profits for Rio dropped 14% for:

•  Rio's core business of Iron Ore (which was the unit Sam Walsh ran before becoming head of the organization)

One of their most profitable mines is Pilbara in Western Australia. The Pilbara region is known for its petroleum, natural gas and iron ore reserves.

• Rio Tinto is one of the ten largest companies in Australia

The others include National Australia Bank (NAB) and BHP Billiton.

JP Mulls Exit in Physical Commodities

In a statement, Wall Street's biggest bank said they were exploring a "sale", "spin off" or "strategic partnership" for their physical arm. The Federal Reserve has been making hints that regulation may aim to separate banks' physical and financial commodity arms. This would overturn a 2003 ruling that enable Citigroup to retain all voting shares of Phibro (which incidentally they later sold in 2009 to Occidental Petroleum - formerly run by Ray Irani, a Lebanese-origin PhD chemist, who started his career in research for Monsanto).

Occidental paid $250m for Phibro, roughly the value of Phib's liquid assets.

Qatar Exchange to Start Trading GBonds

The Exchange already trades government bills, with maturities less than one year. Qatar Central Bank issues these bonds on behalf of the State of Qatar. Tradable units of these bonds will have a par value of 10,000 QAR (Qatari Riyal). One riyal is divided into 100 dirhams.

Worth mentioning a few facts on the current trading in bills... these are issued as a monetary policy tool, one of the applications is to regulate the money supply and influence interest rates. They are issued at a discount to face value. At maturity, the investor receives the full par value. The difference between price paid and par value represents the return to the investor.

The Latest Take on the WTI Curve (New Focus on Q13)

The "near-term" contango in crude (specifically WTI) extends out to the "Q13" futures contract a.k.a. August 2013 (but which, as we know, expires in July), which peaks out at just over 94 and a half dollars. This contrasts with 94 dollars and 30 cents on the front month. After that, it's pure backwardation. Brent remains on pure backwardation.

Oil futures curves have relatively simple shapes. It's a bit of a different story in the gas market. For example, we might consider the "broad contango" in the price of NYMEX Natural Gas.

What we see is actually seasonality in the futures prices, reflecting seasonal demand, underpinned by a  general upward trend. Mini-peaks are observed for delivery for Jan 14, Jan15  and Jan16, with the biggest jumps happening from November to December. After January prices drop off gradually, and then suddenly from March to April. Gas prices are rather weather-dependent. Current front month (June 13) NYMEX is around $4 and 7 cents per mmBtu, with an increasing general trend, with $4 and 37 cents for Dec13 (creating a 30 cent contango within the six months from July to December).

Gold Revisits the 1390 Level

And even crosses below a few times. Platinum however storms ahead, almost a hundred dollars ahead of gold.

How Much Property does the Crown Estate have?

Ans: about £8bn worth.

The firm owns the very visible assets of Regent Street and St. James. It also owns Windsor Great Park.

Less well known, is that the Crown Estate also owns most of the sea bed around the UK out to 12 nautical miles (a nautical mile is roughly 1.85 km, contrasting with a "regular" mile of 1.6 km).

The Energy Act of 2004 also granted the Crown Estate the right to license renewable energy generation within these limits.

Companies involved in developing these offshore wind farms include Centrica Renewables and Dong Energy (headquartered in Denmark), which has a 50% stake in the London Array.

The Crown Estate can also grant leases for CCS (Carbon Capture and Storage) projects which store unwanted carbon dioxide under the sea bed.

It can also grant leases for wave and tidal projects linked to its ownership rights over the sea bed. The Estate has so far leased over 40 sites for tidal energy projects.

Gold below 1400 USD - but will CBs start buying?

Gold has dropped BELOW $1400 per troy ounce (biggest drop since 1983), dancing at the 1390 level. Sri Lanka says this is an opportunity to increase reserves. Gold has traded as high as $1921 in September 2011.

Vedanta Increases Oil and Gas Production, Tullow Monetises Assets

Vedanta's oil and gas production has increased thanks to Cairn India (a subsidiary) which has made its 26th oil strike in Rajasthan. Its iron ore operations suffered due to suspensions in Goa (Western India, with an Arabian Sea coast) and Karnataka. Silver production was up to 13m ounces. Goa put a ban on iron ore transportation due to accidents on the roads.

Tullow Oil, another FTSE oil and gas producer, as part of its "portfolio management and asset monetisation" process, will be selling its assets in Bangladesh to Singaporean company, KrisEnergy, for $42m. This gives Kris a 30% stake in Block 9, which includes the Bangora gas producing facility. Tullow is named after a small town in Ireland, about 35 miles South of Dublin. It's Founder and CEO is Aidan Heavey.

Regulatory Pedigree Bankers Rise to the Top in Nomura's Latest Nomination

Jeremy Bennett, who has advised the former FSA on banking reform, has become Chief Executive of Nomura in the EMEA region. He will be based at the firm's Angel Lane headquarters. The chartered Management Institute (CMI) has reported a 15%+ rise in Chief Executive total compensation over the past twelve months.

Slovenia Says "No Euro Bailout"

The OECD warned that Slovenia was not doing enough to tackle a "severe banking crisis". PM Alenka Bratusek, from the University of Ljubljana  has said said "we will solve our problems alone". The population of Slovenia is 2 million, with national language Slovene (an Indo-European language) and a land mass smaller than New Jersey.  The country lies between Italy and Croatia.

CTO-ville: From Adobe to Apple

Illinois Graphics Guy Hits Big at Apple (Cloud Computing Could be Brewing)

• Kevin Lynch, Adobe's Chief Technology Officer for five years, is moving to become vice president of Technology at Apple.  Well done Kevin, and hope you can leverage your Adobe technology experience to improve products at Apple!

Kevin studied Interactive Computer Graphics at the University of Illinois. Some of his influences can be read from his web page, including American electrical engineer's Vannevar Bush visionary article of 1945.

Steve Jobs was known for criticising Adobe Flash. Adobe's most recent quarter bagged $1bn in revenues. Now the time has come for those from Adobe to come to Apple.

The wider world of CTOs

What about other companies with a technology-driven culture? Take behemoth Microsoft.

• Eric Rudder is Microsoft's CTO/CSO (Chief Technical/Strategy officer) 

Eric has management responsibility over Microsoft Research. He's a graduate of Brown University (Rhode Island, East of Connecticut). He was the architect of Visual FoxPro 3.0 and has also managed developer outreach at Microsoft.

The CTO World Congress is one way to network with CTOs.

MBS Rocks 2012 .. but there are Risks

Mortgage-backed securities outperformed all other asset classes in 2012.

Why would an average person have an interest in MBS? Well, they have an attractive yield relative to Treasuries and Swaps.

The downside is an MBS portfolio requires active management. Additionally, mortgage analytics are needed for this, as is research into the housing market.

The risks of investing in MBS

MBS are subject to prepayment risk (which shortens the life of the security), When interest rates are falling, prepayments tend to rise.

17 years of Research Pays off as Japan Extracts "Ice Gas"

This opens the potential to extract energy from methane hydrates. The proof of concept was done by JOGMEC (Japan, Oil, Gas and Metals Corporation).

J's HQ is in Minato-ku, Tokyo, which is worth discussing in detail. Many embassies are located in Minato including the United States, Canada and Kazakhstan. The famous Roppongi Hills development (opened in 2003) are in Minato, constructed by building tycoon Minoru Mori.  Goldman Sachs (including Goldman Sachs Realty Japan Ltd.), Simmons and Simmons, Google Japan and the Pokemon company are located in the Mori Tower, Roppongi Hills.

Minato is also the location of the Tokyo Tower (over a 1000 feet tall, roughly the same size as the Eiffel Tower in Paris). The Tokyo Skytree is around twice the height of Tokyo Tower, taller than the Empire State Building.

JOGMEC is also responsible for stockpiling petroleum supplies to supply Japan's energy needs. Its petroleum stockpiling program began in 1978.

Jonathan takes Helm at Alibaba

Alibaba.com ("Global Trade Starts Here" (TM)) the e-commerce site has a new leader - Jonathan Liu (who led the development of the firm's payment system, AliPay). The website was started by founder-CEO Jack Ma from his apartment in 1999. 

A Nod to the Majors

"The Majors" are the most traded currency pairs in the world, there is no Lieutenant Colonel above them (to explain that statement, a Major is usually the next rank after Captain in the Army, and just before Lieutenant Colonel).

The Majors comprise the EURUSD ("probably" the most traded currency pair in the world aka. "The North Atlantic Treaty"), the USDJPY (ever so topical with the Bank of Japan regularly making statements - trading at around 93 Yen, aka "Tokyo DisneyLand"), Cable (aka The Cameron Camera) trading around $1.52, Ozzie (aka "The Kylie Minogue" - 1.02 USD; sailing very close to parity), Swissie (or The Swiss Cheese - USDCHF - roughly 92 centimes) and Loonie (USD/CAD - a largely cordial relationship since the War of 1812 - trading at 1.01 CADDIES).

The most interesting of the Majors at the moment are Tokyo-Disneyland, The North Atlantic Treaty and The CamCam.

Livingston's Cerebral Guide to the Corporate Loan Market

The corporate loan market is here explained by Livingston in no particular order.

Investment Grade versus Leveraged Loans

The "investment grade" loan market is the "golden child" of the loan market. It comprises loans to companies rated >= BBB/Baa3 with relatively low spread to LIBOR. Nothing very exciting - these are solid companies, with strong credit ratings that can finance themselves relatively cheaply.

The "leveraged loans" market, on the other hand, is a different kettle of fish. Here we deal with companies with weaker credit ratings and spread >= LIBOR + 150bps.

Side note: leveraged loans are also used in leveraged buyouts (LBOs) of companies.

Institutional Loans

Loans structured for sale to institutional investors, e.g. mutual funds, hedge funds, insurance companies, CLOs (where loans are pooled together, requires deeper explanation (later)).

Secondary Loans / Secondary Market

A secondary loan market is one in which loans trade after primary syndication completes - mostly this involves leveraged loans.

The area of banks that are dedicated to bringing these loans to the market is called loan underwriting/syndication. From the league table perspective, this has a jargon all of its own.

* Lead left - only lead bank on a transaction
* Lead bookrunner / Lead arranger - top 1 or 2 banks in the transaction (called left and right)
* (Titled) Agent - usually lead arranger
* Co-agent - involved but not from the earliest stages

Role of the Revolver

Both investment grade and leveraged loans generally involve some sort of revolver. It offers flexible financing for corporations.  With an RCF- as its sometimes known (the F stands for "facility") , the loan can be repaid and redrawn. Revolving credit is generally linked to LIBOR.

CLO

With a CLO, you pool together a bunch of loans. The payments of these loans are passed on to the owners of various tranches of the CLO. CLOs are an instrument of syndication - it's basically creating debt for companies, packaging that debt into a "marketable" format for willing investors, thus lowering the cost of capital the company.

Financial Twitter

In the "Economics and markets" category of our Twitter selection:

Check out PIMCO on Twitter. Also:
Ed Bradford on G-bonds,
StLouis Fed on all things Federal Reserve.
ZeroHedge on various, including Bonds.
Sallie Krawcheck on banking.
Roubini on Economics.
Nick Firoozye from Nomura.

You can also follow some "finance-related" institutions, such as:

NYSE Options (includes the "AMEX" market subsumed by the "NYSE")

The BUNDESBANK wants its gold BACK

The German Bundesbank, second largest holder of gold in the world after the United States, has decided at least half its gold should be in its own vaults. Part of this comes with pressure from the German Precious Metals Association. Apparently, last year the U.S. Federal Reserve had refused to allow Germans to verify their gold held in US vaults (reported in Der Spiegel).

Trading the RICI

The RICI is the Rogers International Commodities Index, being promoted by the NYX, and founded by James Rogers, Jr., which started at a value of 1000 in July 1998.

Commodities are selected based on their importance to "worldwide consumption" - commodities merely of national interest are omitted (like Azuki - red bean - futures, on TOCOM). Additionally, the index focuses on the most liquid contracts e.g. COMEX Silver, rather than silver on the Tokyo Commodity Exchange. COMEX silver trades in USD per troy ounce, versus TOCOM's yen per gram. Note that COMEX is owned by the CME Group.

Over January and February 2013, the index is moving from ICE Coffee to NYSE Coffee, similarly ICE Cocoa to NYSE Cocoa.

Beeland Management Company is an advisor to RICI (Beeland being Mr Rogers middle name).

CQG is another advisor into RICI. They provide trading into JP Morgan, Citi and Kyte.

Most Levered Commodity Assets

ATM commodity options give you generally 5-10 times leverage. You can get a pretty good 8x to 9x leverage from trading base metals options on LME aluminium and copper. Copper has higher leverage than aluminium although their volatilities are roughly the same. Crude options give you about 8x leverage.

Microsoft Ready to Eat Dell

Michael Dell, Microsoft and Silver Lake are preparing to re-take Dell for $24.4bn. This is a huge transaction in the "take-private" deal category.

John Brennan is an MD with Silver Lake in Menlo Park (San Mateo County, California). Christian Lucas (former Head of European Technology at Morgan Stanley) is an MD with Silver Lake in London.

The Incoming Governor of the Bank of England

Ex-Goldman Sachs Mark Carney will become Governor of the Bank of England on July 2013. He studied at both Harvard and Oxford. As Governor of the Bank of Canada, he explained that his "fundamental priority" was to ensure "low, stable and predictable inflation".

The Art of Inverse Equity ETFs

Inverse ETFs allow investors to hedge long equity positions. It also facilitates some form of long/short equity trading.

Proshares (it seems) offers good liquidity in Inverse ETFs.

Here's a case study of SH, which was created in 2006. SH allows you to go 100% short the S&P 500. The expense fee is 0.89%. The NAV is calculated at 4pm ET.

How does Proshares the ETF work? As of 1 Feb 2013, it's partly achieved by being ~$64m short on the S&P 500 e-Mini March contract - a massively popular futures contract (trades 5 days a week on a March quarterly cycle). But as not all the liquidity can be executed on the exchange, a large percentage of the short position is achieved via Equity Index Swaps (e.g. they are short $380m against Goldman Sachs, $306m short against Deutsche Bank).

This is an interesting concept: selling protection (insurance) via an ETF by massively shorting the futures market.

The Global ETF Market & Focus: From Super-Cheap SCHX to Innovative EG Shares

Awesome Size of the Global ETF Market

The Global ETF Market, as reported by London's Financial Times newspaper, has invested in it a sum greater than 2 trillion dollars. It also states that nearly 70% of that figure is held by Blackrock's iShares (acquired from Barclays in 2009), State Street and Vanguard. In Europe, Lyxor, owned by Societe Generale, is also pretty big.

ETFGI is a company focused on ETF research, started by staff from Morgan Stanley, involved in investment research and strategies.

How does an investor compare ETFs?

Metrics for Comparison

One metric is the EXPENSE RATIO. One of the cheapest ETFs is the Charles Schwab US Large Cap ETF  (SCHX) which has an expense ratio of 0.04%. It is non-leveraged and holds assets of $1bn (about 18% of holdings are in the IT sector).

Morningstar is a company that gives ratings to ETFs,based on performance, adjusted for cost, and adjusted for risk.

ETF "Categories"

They also assign special categories to ETFs, depending on the asset class. For example, a US stock ETF might be classified as "Large Growth", "Large Value" or "Large Blend" or sector-based e.g. "Real Estate", "Utilities", "Technology". In the area of Alternatives they have categories like "Managed Futures", "Volatility", "Equity Precious Metals" or "Inverse Equity".

What does the "Equity Precious Metals" category consist of?

These funds invest in equities connected with precious metals, such as gold mining companies.

ETF Exchanges

NYSE ARCA has a whole range of tradable ETFs, searchable by issuer. For example, iShares have 10 ETFs on ARCA.

Indian ETFs

EG Shares has developed Indian ETFs. Once such, is NYSE:INXX, an Indian Infrastructure ETF. It has an expense ratio of 85bps. The investment is done via equities, ADRs and GDRs. The companies purchased must have a market cap of at least $200m at time of purchase.

EG Shares also produce Brazil and China infrastructure ETFs. CEO Marten Hoekstra was formely the CEO of UBS Wealth Management Americas.

At 3s and 6s with GS and JP

Goldman Sachs and JP Morgan both performed strongly in 2012 but how did the two businesses compare both at the macro level and at the individual business unit level?

GS: Net Income = $2.89bn (just under 3 bn)
JP: Net Income = $5.7bn (just under 6 bn)
GS: Net Revenues = $9.24bn
JP: Net Revenues = $24.4bn

GS seems to have been performing decently in rates and credit, but weaker in commodities and currencies in 2012.

Morgan Stanley did pretty badly in Q4. Net revenues were $7bn but income from continuing operations was only $573m. The Institutional Securities Division lost $1.7bn overall -through compensation expense of $6.7bn (lowered from last year) and non-compensation expenses of $5.6bn (up from last year, due to litigation expense, relating to some confusion over loans made to New Century Financial).

The Art of Naptha Trading

Naptha is a lightweight hydrocarbon.

Who trades it?

• Vitol (primarily a physicals trader) trades about 14m tonnes of naptha per year.
• Trafigura has naptha trading teams in Geneva, Houston and Singapore
• Glencore - has been reported to buy naptha every so often direct from refiners like Essar

What is it used for?

Primarily a feedstock for high-octane gasoline.

The Story behind the Traders

Trafigura is a Dutch company founded in 1993 established by Claude Dauphin and Eric de Turckheim. They have been involved in a number of scandals including waste dumping in Cote d'Ivoire.

Glencore was started by Marc Rich, credited for creating the spot market for crude oil in the 1970s. It was formerly known as Marc Rich & Co. AG.

Reflecting on FX Volatility Correlation in 2012

The May/June FX Vol Party of 2012

There was a strong degree of FX volatility correlation in 2012, reflected across the "majors" such as EURUSD and USDJPY and Cable, as well as "EM" pairs such as USDINR, and more esoteric pairs like "euro-zloty".

The bulk of this correlation can clearly be seen in the May/June period of 2012 when FX volatility peaked across the board, before subsiding in the latter part of June.

Europe Leading the Crazy Vol Market

The main driver for this craziness was Europe. The Bank of International Settlements covered this in their June 2012 Quarterly Review, whose executive summary was "Optimism Evaporates" (end of the second quarter 2012).

Sentiment around that time, reflected in the FX vol market, could have been due to:

• Concerns over the impact of fiscal consolidation on growth
• Financial health concerns for Euro-area sovereigns and banks

"Upside Bias" in EURUSD Short-Term Volatility- What it Means

Looking back from January 2013, we see the EURUSD one-month at-the-money vols over a one-year period, has been biased to the upside in volatility terms (by this I mean there are observations beyond two standard deviations from the mean on the over the past one year (during the "optimism evaporation" period for the Eurozone, rapidly followed by the "condensation" period)) but no such observations below two standard deviations from the mean on the downside).

"Crazy Horse" Levels versus Average Vol Levels on EURUSD

During this "crazy time", mid-June vols were around 13% versus the current one-year average implied of 9% (we are currently trading below that at 8.5%). This second-quarter vol-spike is not unprecedented, though. It is also worth noting that the 1 year average of 9% is also below the 3 year vol average of 12%.

Palladium - The Mystery Metal 20+ Times More Valuable Than Silver

Power of Palladium

Palladium is the mystery metal more valuable than silver.

It was discovered as recently as 1803 by chemist William Wollaston whilst analysing platinum ore samples from South America. It is known as a "rare element". It is often recovered as a byproduct of mining other metals like platinum, silver and gold.

Whereas silver is around $31 an ounce, palladium is  around $720 an ounce - about 23 times more valuable.

Palladium is also less than half the value of gold.

Palladium's Precision Applications

Palladium is used in making springs for watches, surgical instruments and dental fillings and crowns.

• Palladium dichloride is used in carbon monoxide detectors.
• Palladium is combined with gold to form white gold.

Platinum Price Rises above Gold

Spot platinum hit a high of $1,701 per ounce. Woosha!  The rise was partly due to supply concerns in South Africa.

Blockbuster Gets Busted

Another victim in the UK high street rampage (Blockbuster have around 1000 stores in the UK) and another round of new business for Deloitte! Deloitte have taken the honourable step of promising to honour all Blockbuster vouchers (e.g. vouchers to rent two movies a month for three months, and the like). Founded in Dallas in the era of the VHS, Blockbuster was already bankrupt in 2010, and rescued by US satellite TV operator Dish Network in 2011. Blockbuster has been overtaken to some degree by LoveFilm which has 40% of the rental market in the UK. Managing Director Martin Higgin's compensation in 2010 was £613,000, a ludicrous sum-of-money for a company that was basically being run "business-as-usual".

HMV Welcomes New Year in Administration

HMV, with 250 stores, failed to reach agreement on its debt situation and went into administration on Tuesday, 15 January. The administrators are Deloitte and Touche.

Trevor Moore is the Chief Executive, having been appointed fairly recently, having previously run Jessop Group Limited, another high-street name, which went into administration just a few days prior. Was it poor management, the impact of recession or the force of online shopping that brought these firms to their knees. What questions does this raise for other UK high street names?

According to analysts, HMV "did not react early enough to the digital trend" and have a business model that is "irrelevant and unsustainable". Both HMV and Jessops have online businesses but rather low profile ones.

HMV has had a great history, opening it's first store in 1921, expanding in the 1970s and going public on the LSE in 2002. Simon Fox became Chief Executive in 2006, and did a big transaction in 2009, buying MAMA Group for £46m (sold in December 2012 for £7.3m to Lloyds Development Capital). It started closing stores in 2011 to reduce its debt pile.

Retail consulting firm Conlumino said investing in HMV would be "betting against the future".