Economics

Markets right to take Fed move badly

19 Feb 2010

At first glance, it looks ridiculous for investors to treat the U.S. central bank's optimistic, well signalled and largely technical increase in the discount rate like a piece of bad economic news. But financial markets run on credit. The Fed move presages more expensive fuel.

In choppy markets, pick your quant fund carefully

19 Feb 2010

Managers which rely on complex patternbased trading rules hit a rough patch in 2009. The quant funds computers were caught out by whipsawing markets, or favoured safety over rallyfollowing. As long as sovereign jitters persist, trendfollowing funds may continue to struggle.

Banks forced to face up to Spanish property crash

19 Feb 2010

Lenders to troubled real estate company Colonial will take a hit in a new restructuring. Colonial will raise 2 bln euros of new capital and could also swap 2 bln euros of debt for new shares. This should keep the company alive, but shows Spain's property crash is far from over.

Chinese dissaving could spur inflation

19 Feb 2010

Chinese consumers are saving less, in part because they don t like the belowinflation yield on savings accounts. The savings decline will eventually help balance the economy. But for now, higher spending is bidding up prices. Higher interest rates could recapture surplus cash.

Abu Dhabi makes 62 pct gain on Barclays’ re-cap

18 Feb 2010

When the UK bank needed cash in 2008, the emirate came through with 5 bln pounds in three different securities. It looked a rich deal for Abu Dhabi then. Now the emirate is sitting on a mostly paper profit of 3.1 bln pounds outshining the return of ordinary shareholders.

Wal-Mart pulls inflation debate down to earth

18 Feb 2010

It s easy to get bent out of shape about future U.S. inflation when the government is borrowing trillions to keep the economy afloat. But WalMart s experience is a reminder that, for now, the battle on the ground is still against corrosive falling prices, not rising ones.

Russia’s threat to TNK-BP looks a bargaining ploy

18 Feb 2010

A state environmental agency has advised that BP's Russian joint venture should lose its licence for a big Siberian gas field. The best interpretation for the UK oil group is that the move is a negotiating tactic to force a deal that admits a state energy company to the project.

Goldman, Greece and governance failure

18 Feb 2010

In 2003, Nicholas Dunbar put Goldman Sachs' swap deals with Greece into the public domain. Revisiting the original story, he argues that the current controversy over the transaction highlights what goes wrong when weak public sector governance meets financial innovation.

Fortress bond fund purchase looks smart

17 Feb 2010

The listed alternative asset manager is buying Logan Circle, a $12 bln bond fund manager. Private equity and hedge fund assets used to be worth more than traditional funds. But that gap has narrowed. Fortress and its ilk need steady assets to keep them stable in tough times.

Raft of U.S. states has variant of Greek flu

17 Feb 2010

The 50 states don't have imbalances on the scale afflicting Greece. Still, some states' weak fiscal management has been badly exposed by the downturn. Defaults aren't unthinkable. But as with the EU's backing for Greece, the federal government would probably ride to the rescue.

Deficit problem is now political, not financial

17 Feb 2010

Financial crisis and deep recession were good reasons for massive government borrowing. But persistent fiscal trouble is a political problem a sign that leaders can t persuade voters to accept a painful reality. Before long, governments will have to get stronger.

Leave the stock market dogs in their kennel

16 Feb 2010

Can investors beat the market? In theory, no. But blind adherence to some simple strategies would have worked in the past. Buy small caps or value stocks, or better still, follow momentum by buying winners and selling losers. The only snag is a few really bad years, like 2009.

BoE caught in inflation-recession battle

16 Feb 2010

Inflation at 3.5 percent is uncomfortably high for the UK central bank. The rate is set to fall soon, but the battle between inflation and deflation has not yet been decided. Global easy money and devaluation point to higher prices, a weak recovery and tight credit to lower.

The Greek crisis show has another month to run

16 Feb 2010

European leaders have confirmed that the Greek deficit reduction plan will be judged for seriousness in March. In the meantime, they will try to convince their own voters that spendthrift Greece won't simply get a handout, while trying to calm investor fears of an EU breakdown.

Volcker Rule looks more like hype than future law

15 Feb 2010

Legislators aren't keen on the former Fed chairman's plan to limit proprietary trading. But then Volcker joked he was just a photo op, even after Obama's public endorsement. US lawmakers are not up for sweeping financial reform. It would take another big crisis to change that.

Greece may vindicate Europhiles, not Eurosceptics

15 Feb 2010

Eurosceptics who have always doubted that the single currency could survive have been predicting doom for Athens, Frankfurt and Brussels. But europhiles expect the Greek crisis to end with more solidarity. If recent history is a good guide, the europhiles will prevail.

Russia takes tiny step to fight systemic rot

15 Feb 2010

A new law will restrict pretrial detention of people accused but not convicted of economic crimes. That may block one way for businessmen and corrupt officials to intimidate enemies. But it will hardly put a dent in endemic Russian corruption.

Sovereign debt crisis? Worry about U.S. and UK

12 Feb 2010

The EU deal over Greece should calm markets. The euro zone is taking its debt problems seriously. But the Englishspeaking giants are still playing with fire: big deficits and no clear plans for cuts. They could be struck by investor flight or choose debtshrinking inflation.

Spain’s biggest debt problem isn’t sovereign

12 Feb 2010

The government was prudent during the good times, so while Spain's deficit is huge, it public finances are not in Greek condition. But the private sector households and businesses are badly overborrowed, just as unemployment heads towards 20 pct. Spanish banks will suffer.

Chicago Merc crafts elegant deal for the Dow

11 Feb 2010

News Corp looks to be getting the better end of its deal to sell control of DJ Indexes to the CME. It gets a full price, 10 pct of a bigger venture and retains the brand. But the structure brings other benefits to the futures exchange that could pay off for shareholders.