Posts Tagged ‘LIBOR’
Frontrunning: June 18
Tuesday, 18 June 2013 06:32
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  • Obama Says Bernanke Fed Term Lasting ‘Longer Than He Wanted’ (Bloomberg)
  • Merkel Critical Of Japan’s Credit Policy In Meeting With Abe (Nikkei)
  • China Wrestles With Banks’ Pleas for Cash (WSJ)
  • Biggest protests in 20 years sweep Brazil (Brazil)
  • Pena Nieto Confident 75-Year Pemex Oil Monopoly to End This Year (Bloomberg)

    • (Read more…)

  • G8 leaders seek common ground on tax (FT)
  • Putin faces isolation over Syria as G8 ratchets up pressure (Reuters)
  • Former Trader Is Charged in U.K. Libor Probe (WSJ) – yup: it was all one 33 year old trader’s fault
  • Draghi Says ECB Has ‘Open Mind’ on Non-Standard Measures (BBG)
  • Loeb Raises His Sony Stake, Drive for Entertainment IPO (WSJ)
  • Yahoo says it had as many as 13,000 data requests (Reuters) – so at least supposed terrorists still use Yahoo…
  • Why Citi wants to rack up U.S. taxes (Reuters)

 

Overnight Media Digest

WSJ

* President Barack Obama and Russian counterpart Vladimir Putin clashed openly over Syria as world leaders began a summit, sharply underscoring deepening differences over the civil war.

* Clearwire Corp, long the U.S. wireless industry’s most embattled carrier, has emerged in recent months as its crown jewel. The company, which has teetered on the brink of bankruptcy, has drawn keen interest from Dish Network and Sprint Nextel Corp for its huge stockpile of spectrum.

* British prosecutors plan to file criminal fraud charges against former UBS and Citigroup trader Tom Hayes for allegedly trying to manipulate benchmark interest rates.

* Investor Daniel Loeb’s hedge fund Third Point has boosted its stake in Sony to 6.9 percent, ratcheting up a campaign to convince the company to launch an IPO of its entertainment division.

* China’s big banks are pressuring the nation’s central bank to free up funds to ease an unusual cash squeeze in the world’s No. 2 economy.

* President Enrique Peña Nieto will seek to end a taboo of nearly eight decades by opening the state-run oil and gas industry to private investment and competition.

* Tesla’s Elon Musk has made a fortune disrupting the status quo in online shopping and renewable energy. Now, he’s up against his toughest challenge yet: Local car dealers. The electric vehicle maker wants to sell directly to consumers, bypassing franchised automobile dealers. Dealers are flexing their considerable muscle in states including Texas and Virginia to stop him.

* The U.S. Supreme Court ruled that courts should give more scrutiny to pharmaceutical industry patent settlements that can delay the entry of generic drugs.

* John Malone’s Liberty Global is in talks with Germany’s biggest cable operator, Kabel Deutschland, a move that could set off a bidding war with Vodafone Group . Liberty Global has been expanding aggressively in Europe.

 

FT

Russian president Vladimir Putin refused to abandon support for Syrian president Bashar al-Assad, despite pressure from the U.S. and other western countries at the G8 leaders summit calling for a transition of power in Syria.

U.S. media group Liberty Global Plc has put forward a 7.5 billion euro ($10.01 billion) bid for Germany’s biggest cable operator Kabel Deutschland, setting the stage for a potential bidding war with Britain’s Vodafone Group Plc

Anthony Bolton–one of the United Kingdom’s best-known fund managers, who came out of retirement in 2010 to move to Asia and try his luck investing in China, is to step down from managing the Fidelity China Special Situations Fund next year.

The Co-Operative Group forced listing of its banking subsidiary will serve a bitter blow to the government’s advocacy of mutuals as a more sustainable alternative to discredited listed banks.

Russia’s Alfa Group has hired former BP chief Lord Browne to advise the company on global energy investments, as it looks to spend some of the $14 billion proceeds from its sale of TNK-BP on oil and gas projects.

Alliance Boots, the pharmacy chain owned by New York private equity group KKR, has accumulated about 5 billion pounds in tax credit over the past six years, prompting calls from MPs to change tax rules that benefit private equtiy.

 

NYT

* The fiscal crisis in Michigan is setting up as a gigantic clash between bondholders and city retirees over what money Detroit has left to pay them. Public finance experts have warned that broad societal problems could follow a loss of faith in municipalities’ commitments to honor their pledges.

* On Tuesday, MTV will introduce its latest deep dive into generational behavior: a nationwide study of 1,800 “young millennials.” The findings will be presented to marketers and MTV programmers to help show how the channel and its sponsors can speak to the younger end of the audience.

* Over the weekend, Facebook and Microsoft released reports about the overall number of data requests they had received from United States law enforcement agencies. On Monday, Apple Inc and Yahoo joined the chorus. But rather than provide clarity, some of the disclosures have left many questions unanswered.

* Independent reviews of clinical trial data concluded that Medtronic Inc’s Infuse, a bioengineered bone product, was not significantly better than a traditional bone graft, and that it might pose risks.

* European Union leaders and United States President Barack Obama announced on Monday the start of negotiations for a far-reaching trans-Atlantic trade deal, but French indignation over recent remarks by a high-ranking Brussels official created a sideshow at the Group of 8 meeting.

* David Green, the director of Britain’s Serious Fraud Office, plans to revive the agency’s reputation with a criminal investigation into the rigging of the Libor.

* Pharmaceutical companies that pay rivals to keep less-expensive generic versions of best-selling drugs off the market can expect greater federal scrutiny after a Supreme Court ruling on Monday.

* Eddy Cue, a senior vice president at Apple Inc, denied the government’s charges that the company was working with e-book publishers to raise prices.

* Davis Polk & Wardwell has hired Jon Leibowitz, former chairman of the Federal Trade Commission, a coup for the law firm as it bolsters its increasing presence in Washington.

* After several years of intense demand for smaller, single-aisle workhorses, European plane maker Airbus on Monday secured a customer for its twin-deck A380 superjumbo jet, in a deal the company hoped would signal a revival in interest in larger passenger jets.

* LinkedIn Corp’s Influencers program, which consists of people in leadership positions posting about their lives and careers, has transformed viewer engagement on the site, its chief executive said

 

Canada

THE GLOBE AND MAIL

* Canadian post-secondary students feel stressed, overwhelmed, lonely and some have even considered suicide in the past year, a new study released on Monday suggested.

* Attitudes toward Canada’s oil have shifted dramatically in the United States in recent years, as Americans increasingly view it as a key part of their own energy independence, outgoing U.S. Ambassador to Canada David Jacobson says.

* Liberal Leader Justin Trudeau remained under fire Monday for taking hefty speaking fees from charitable groups after becoming an MP, despite promising to pay back any organization that was dissatisfied.

Reports in the business section:

* U.S. President Barack Obama hinted in an interview aired on Monday that he may be looking for a new chief of the U.S. Federal Reserve Bank, saying current Chairman Ben Bernanke has stayed a lot longer than he had originally planned.

* Embraer SA, a fierce competitor against Bombardier Inc in the market for regional jets, is upgrading its fleet and taking aim at Bombardier’s C$3.4 billion ($3.34 billion) C Series.

* Government intervention in the economy is back in vogue and Canada risks being left behind unless it figures out where it can best make a difference, two former federal government economists argue in a new paper.

NATIONAL POST

* A rookie town councillor in Irricana, Alberta, Wayne Niblow, has resigned after being arrested for allegedly possessing a large quantity of crack cocaine for the purpose of trafficking.

* The Montreal replacement mayor, Michael Applebaum, who recently took office amid a corruption scandal, and who promised to restore public trust, has now been arrested in a bribery case.

* Thailand’s national Buddhism body said on Monday it is monitoring monks nationwide for any inappropriate behavior following complaints ignited by a video showing Buddhist monks flying on a private jet.

FINANCIAL POST

* Northern Gateway oil sands pipeline proponent Enbridge Inc., First Nations leaders, union and provincial government interests, environmental organizations, are putting forward final oral arguments before a joint panel of the National Energy Board and the Canadian Environmental Assessment Agency.

* Subway Restaurants keeps growing steadily in Canada even though the fast-food sandwich purveyor has not followed rivals McDonald’s Corp and Tim Hortons Inc in appealing to coffee loving Canadians.

 

China

CHINA SECURITIES JOURNAL

- Some funds may flow back into emerging markets as the policies of both the U.S. Federal Reserve and the Bank of Japan stabilise, the newspaper said in a commentary.

- China’s domestic oil prices are forecast to rise on June 21 due to the rising price of crude in the international market, analysts said.

SHANGHAI SECURITIES NEWS

- China’s four major state-owned banks said Central Huijin Investment Ltd, a state-owned investment company, has started increasing its share holdings in the banks.

CHINA DAILY

- Harsher regulations on food safety are needed in the face of mounting public outcry over the subject, but the lack of adequate supervision and enforcement of the rules are a bigger problem, the newspaper said in an editorial.

PEOPLE’S DAILY

- China’s fastest Tianhe-2 computer was ranked first on the Top 500 Supercomputer list, surpassing Titan, the supercomputer owned by the Oak Ridge National Laboratory of the US Energy Department.

 

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

Flir Systems (FLIR) upgraded to Strong Buy from Market Perform at Raymond James
HSBC (HBC) upgraded to Buy from Neutral at Citigroup
Motorcar Parts (MPAA) upgraded to Buy from Neutral at B. Riley
People’s United (PBCT) upgraded to Overweight from Neutral at JPMorgan

Downgrades

Charles River Labs (CRL) downgraded to Sell from Neutral at Goldman
Comerica (CMA) downgraded to Underperform from Market Perform at Wells Fargo
Covance (CVD) downgraded to Underweight from Equal Weight at Barclays
First Horizon (FHN) downgraded to Underperform from Market Perform at Wells Fargo
Genomic Health (GHDX) downgraded to Neutral from Buy at BofA/Merrill
Palo Alto (PANW) downgraded to Buy from Conviction Buy at Goldman
Sanderson Farms (SAFM) downgraded to Hold from Buy at KeyBanc
Toronto-Dominion (TD) downgraded to Equal Weight from Overweight at Barclays
Williams Partners (WPZ) downgraded to Neutral from Buy at Goldman
Williams (WMB) downgraded to Buy from Conviction Buy at Goldman

Initiations

American Residential Properties (ARPI) initiated with an Outperform at Raymond James
Insmed (INSM) initiated with a Buy at UBS
Intuitive Surgical (ISRG) initiated with an Outperform at Wedbush
Quintiles (Q) initiated with a Buy at Deutsche Bank
Quintiles (Q) initiated with a Hold at Jefferies
Quintiles (Q) initiated with a Neutral at Goldman
Quintiles (Q) initiated with an Outperform at Raymond James
Quintiles (Q) initiated with an Outperform at Wells Fargo
Quintiles (Q) initiated with an Overweight at JPMorgan
Quintiles (Q) initiated with an Overweight at Morgan Stanley
Quintiles (Q) initiated with an Overweight at Piper Jaffray
RCS Capital (RCAP) initiated with an Outperform at JMP Securities
T-Mobile (TMUS) initiated with a Hold at Canaccord

HOT STOCKS

Sprint (S) filed suit against DISH (DISH), Clearwire (CLWR) over tender offer
Elan (ELN) advised holders to withdraw acceptances of Royalty Pharma offer
Bombardier Transportation (BDRBF) won $2B order from Deutsche Bahn for electric locomotives
Oracle (ORCL) secured judgment against ServiceKey
EMCOR Group (EME) to acquire RepconStrickland for $455M
United Continental (UAL) increased Dreamliner (BA) order to 65
Tesoro (TSO) announced sale of Hawaii operations
Campbell Soup (CPB) to acquire Kelsen Group, terms not disclosed
Mattel (MAT) subsidiary to grow broadcast and online presence

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Korn/Ferry (KFY)

NEWSPAPERS/WEBSITES

  • German cable operator Kabel Deutschland confirmed it received a proposal to be acquired by Liberty Global (LBTYA), potentially creating a bidding war with Vodafone (VOD), the Wall Street Journal reports
  • Mexico’s President Enrique Pena Nieto will seek in the coming months to end a taboo of nearly eight decades by opening the state-run oil-and-gas industry (SLB, HAL) to private investment and competition, a move the government hopes will attract billions of dollars in investment, the Wall Street Journal reports
  • Johnson Controls (JCI) is speaking to private equity firms about selling its nearly $1B automotive electronics unit, after buyout interest from many rival auto parts suppliers failed, sources say, Reuters reports
  • Talisman Energy (TLM) is exploring the sale of its shale assets in the Eagle Ford basin in south Texas, hoping to raise up to $2B, sources say, Reuters reports
  • European car sales fell to a two decade low in May as rising joblessness caused by a recession in the euro region reduced demand at Peugeot (PEUGY), Renault and GM (GM), Bloomberg reports
  • The U.S. oil boom is moving Congress closer than it has been in more than 30 years to easing the ban on exporting crude imposed after the Arab embargo. Net petroleum imports now account for about 40% of demand, down from 60% in 2005, Bloomberg reports

SYNDICATE

Ares Commercial Real Estate (ACRE) files to sell 18M shares of common stock
Diamondback Energy (FANG) files to sell 5M shares for selling stockholders
Exact Sciences (EXAS) proposes public offering of undisclosed amount of common stock
Liberty Global (LBTYA) files prospectus for 14.39M class A shares
NeuroMetrix (NURO) files to sell 3.97M shares of common stock for holders
New Mountain Finance (NMFC) files to sell 4M shares stock on behalf of a selling holder
Opexa Therapeutics (OPXA) files to sell $17.25M of common stock
Pacific Coast Oil (ROYT) files to sell 20.08M units of beneficial interest for holders
Repros Therapeutics (RPRX) commences offering of 3M shares of common stock
Ship Finance (SFL) files to sell 8M shares of common stock
Valeant (VRX) files to sell $1.75B of common stock

    



 
On The Wisdom Of Crowds (And Madness Of Mobs)
Saturday, 08 June 2013 18:31
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Fear, like greed, makes people, and that would include investors, behave irrationally. Two major equity bear markets in the last 13 years have traumatized investors. The belief in Modern Portfolio Theory in general and the Efficient Markets Hypothesis (EMH) in particular has been shaken and finance theory will have to be re-written. So, Absolute Return Partners’ Niels Jensen asks, what is it specifically that has changed? Human behavior certainly hasn’t. (Read more…) Greed and fear have been factors to be reckoned with since day nought. When faced with the unknown, people (in this case, fund managers) will use whatever information they can get hold of. Hence we shouldn’t really be surprised that fund managers extrapolate current earnings trends when forecasting future earnings, despite the evidence that it is a futile exercise. Occasionally, the Wisdom of Crowds turns into the Madness of Mobs and all rational behavior goes out the window. History provides many examples of that. EMH is entirely unsuited to deal with froth. What made economists love the EMH is that the maths behind it is so neat whereas the alternative truth is a little messy.

 

…

The new paradigm

Two major equity bear markets in the last 13 years have traumatised investors. The belief in MPT in general and EMH in particular has been shaken and finance theory will have to be re-written, or so it looks. So what is it specifically that has changed? Human behaviour certainly hasn’t. Greed and fear have been factors to be reckoned with since day nought. Dr. Lo, who has pioneered the research into how EMH can be adapted to incorporate behavioural factors, offers the following explanation (and I paraphrase):

The growing importance of the financial services industry, together with geopolitical changes (the U.S. is no longer the only dominant economic force in the global economy), and rapid advances in technology, have destabilised the equilibrium. The obvious implication, or so Dr. Lo argues, is that investors must change some of the tools in their tool box.

Interestingly, he doesn’t suggest that EMH should be mothballed altogether. To the contrary, he believes that EMH can work for extended periods of time provided investors behave rationally. I had the pleasure of meeting him in Cambridge (Massachusetts) a few weeks ago, and he delivered a convincing case that investor behaviour is actually rational most of the time when looked upon in aggregate. He calls it the Wisdom of Crowds and illustrated what he means with a simple example:

Imagine somebody puts a large jar full of jelly beans in front of you and you are meant to guess how many jelly beans the jar contains. You have no idea, but you are up for it, so you come up with a number. Sadly, unless you happen to be lucky, the chances are that your guess is miles off the true number. Now imagine that the same question is put to a large number of people and that the mean is calculated as the simple average of all the estimates. Interestingly, research suggests that the mean estimate is likely to be within a few percentage points of the true number. The Wisdom of Crowds.

The FT ran a story at the height of the credit boom back in April 2006 on the rapid growth of the CDO market in Europe. When asked by the FT to
comment on this remarkable growth, Cian O’Carroll, European head of
structured products at Fortis Investments, replied:

“You buy an AA-rated corporate bond you get paid Libor plus 20 basis points; you buy an AA-rated CDO and you get Libor plus 110 basis points.”

On the back of this statement, and despite all the evidence of froth in financial markets in 2005-07, it seems like the crowd was still quite wise. As Dr. Lo states in his 2011 paper:

“It may not have been the disciples of the Efficient Markets Hypothesis that were misled during these frothy times, but more likely those who were convinced they had discovered a free lunch.”

Occasionally, the Wisdom of Crowds turns into the Madness of Mobs and all rational behaviour goes out the window. History provides many examples of that – from the tulip mania in the Netherlands in the 17th century to the more recent bubbles we have experienced in dot com stocks and housing markets around the world. The once golden boy of central banking, Alan Greenspan, labelled it irrational exuberance in a speech in 1996 when commenting on what already then looked like lofty P/E levels on U.S. equities. As we now know, the bull market not only continued for a further 3 ½ years; it actually grew stronger. Once the mob gets going, it takes a great deal to stop it.

EMH is entirely unsuited to deal with froth. Charlie Munger (of Berkshire Hathaway fame) once said, and I paraphrase, what made economists love the EMH is that the maths behind it is so neat whereas the alternative truth is a little messy.

Full Absolute Return Partners Letter below:


The Absolute Return Letter 0613

    



 
You Bankers!
Thursday, 06 June 2013 18:43
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There are times when some people bite their own nose of just to spite their face. According to a report that has just been published by the Chartered Institute of Personnel and Development (CIPD), the people working in the financial sector in 120 different countries in the world think in the overriding majority of cases that they are paid far too much for what they do. Were they serious? To boot, they are paid so much that it’s the money that pushes them to behaving in the way they do. Read: behavior that is inappropriate. (Read more…) Although, admittedly, we might all have different standards of inappropriate behavior. That will open up a whole different can of worms as to what might or might not be appropriate behavior in the financial sector. So, pick yourselves up off the floor, and stop laughing. These guys actually have morals it turns out (after all)?

The study was carried out by the CIPD in April 2013 and it involved financiers in the City of London. Just back in April we read of the Commodity Futures Trading Commission that was discussing whether or not gold and silver prices in London might just be open to manipulation. That was just after the London interbank offered rate (Libor) discovered manipulation. Gold, silver, Libor, we could go on, couldn’t we? Is that the kind of inappropriate behavior that they are being pushed into doing?

So, basically the CIPD has discovered that in actual fact those that work in the financial sector are pushed into inappropriate behavior because of the sums of money that are wafting through their bank accounts based on market manipulation. No way!

But, there’s a bit of fine-tuning that needs doing in the report. The report states that 75% of those that work in the fields of insurance, banking, brokerage and investment agree that some people are paid too much in their fields. They don’t actually think that they themselves are getting too much, only that some people are getting too much. Difference!

80% of the people in the banking sector taken on its own believe that there some who get too much money. But, they are not necessarily talking about themselves. However, 65% of people believe that they are paid extortionate sums of money without actually knowing way they get paid that much. There is little difference on this point between those that are in the higher echelons of the companies and those that are in the lower ones. But, can people really be paid to lap the cream like fat cats and not actually know why they get to do the lapping? Come on? Who in their right mind would state that? Are they just trying to buy themselves a piece of redemption?

The report also shows that 43% of those interviewed believe that there has been a move away from putting the customer and the public first towards greater emphasis being put on shares and profits. Was the customer really first at all, ever? Aren’t financiers in this business to make money? They’re not philanthropists, are they, working for the benefit of altruism with a capital A?

Just last year a report (YouGov) revealed in the UK that 60% of people had lost faith in their banks and the banking sector in general. 49% went as far as to state that they actually believed their banks to be dishonest. Almost the same number thought that their banker was incompetent. Only 1% of those interviewed thought that the banks had changed their attitude and their working practices.

But, redemption can only go so far, anyhow. The figures regarding whether or not the financiers think that the people that act inappropriately should end up behind bars is pretty low, at just around 33%.Perhaps it’s rightly so. Does anyone actually believe that Jérôme Kerviel, the French trader at the Société Générale Bank, was actually trading on his own above the market capitalization of the bank (over €49.9 billion) without the knowledge of his superiors? Kerviel ended up the scapegoat of the French financial system being order to pay the impossible sum of €4.9 billion in full restitution, plus a permanent ban for working in the financial sector. Oh, and a five year prison sentence (suspended for two years) just for good measure. 13% of those that were interviewed also believe that financial-sector workers should be banned for life if they commit misdemeanors.

Maybe, it’s not one person that should be blamed but all. After all, who are those guys working for and in what objective? What’s their incentive? But, more’s to the point, who lets them? It’s the powers that be in the political spheres that govern that, isn’t it? But, we have lost faith in them too.

You bankers! You are funny!

 

The CIPD is headquartered in Wimbledon, London and it has more than 135, 000 members from 120 different countries in the world. It was originally founded in 1913 as the Welfare Workers Association (WWA) and it is a professional association for those working in the HR sector.

Originally posted You Bankers!

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