Monday, January 31, 2011

Equities are dead. Long live sovereign debt.

Solvency 2 © fintag

News comments:
Solvency 2. There you go. Falling asleep at your desk.

Well the impact of Solvency 2 is so severe, I am going to prod you with a stick.

Give me a couple of minutes because it could save your life [Editor: In other words do something else].

S2 means all EU Insurers must put up capital depending on the asset risk. Did you know they invest over EU22 Trillion into the markets? Imagine if this was re allocated to Sovereign Debt? Well guess what, from 1 Jan 2013 it is likely this will all move into risk free (that makes me laugh) government debt in its own currency (best go long EM currencies).

What about money market funds? Well these co-mingled pools could attract capital requirements. You see these EU crats have found a brilliant way to prop up the EURO so cash will not be king.

Solvency 2. The world's worst regulation.

Today's shorts:
Ryan Air does an Osbourne: It's the Snow stupid (ft.com)

The MBA is back. Good grief ....(ft.com)

Women on top. Yes please [Editor: You are fired] (ft.com)

Analyst beats me to my prediction of world crash 2.0 (bloomberg)

Today's longs:
CoCo is the new Bobby Geezer medicine all the banks want (ft.com)

Solvency 2 pre rally gains momentum (bloomberg)

Gossip:
My predictions: 2013/4 credit markets are flush with cash (mostly from china). Insurance companies struggle to invest this unwanted risky asset and buy Real Estate. The bubble gets big on back of 13% inflation and wage inflation spirals out of control. 2015 Private Equity orgasms on the cash-is-back and IPOs tumblr for USD125billion and Facebook buys out Google Apple Inc. Nov 2015 and the regulators cannot keep up as they watch Goldmorgan Stanley implode into a puff of Chinese dragon.



Friday, January 28, 2011

Cuts, Tax and Red Tape: Will the UK turn into Egypt?

Cheese

Bread and Water © fintag

News comments:
Egypt is in a mess (cnn). It has very poor people and very rich people and nobody in the middle. Result? Riots and anarchy.

The UK is in a mess. It has a middle class that is turning into a poor class and the very rich non-doms are buying up the UK for peanuts. Result? Soon it will have riots and anarchy.

David Blanchflower (bloomberg) points out that the UK austerity cuts are pushing the UK into a Double Dip. He is right. However he is wrong to think its just the cuts. The real reason is the squeeze on disposable income. What the UK coalition should be doing is slashing taxes at the same time of making real cuts for most of the austerity cuts are nothing but tweaks (john redwood)

Today's shorts:
Holidays to Egypt (thomas cook)

Today's longs:
Only Old Etonians can rock and roll (bbc)

Gossip:
America sends troops into Egypt.



Thursday, January 27, 2011

AIG: Such a nice outfit

AIG

AIG © fintag

News comments:
You know in Terminator when the mercury alien breaks up and then reforms? Well the markets are a bit like that right now. AIG always reminded of the mercury man.

Just finished a webex with some smug analysts who described the markets in the last few years as violent. Violent markets. I quite like that. I also like Harvey Golub admitting AIG should be broken up into little bits (bloomberg). Our memories are short, and getting shorter thanks to Twitter, but once upon a time AIG was the most hated company in the world. I love the way Americans are able to forgive and forget. Most of the time.

Today's shorts:
Double double double dipping Japan gets a CRA bashing (reuters)

Today's longs:
Gottex are Mercury Man (hedgeweek)

Cayman gives the EU its middle finger (hedgeweek)

Gossip:
Barclays to be renamed Barclays Capital.



Wednesday, January 26, 2011

Double Dip Denial

Mervyn King © fintag

News comments:
So where should I start?

As I pointed out yesterday, UK Economists are more likely to know the lotto results than predict the UK's economy GDP. The UK is Double Dipping and their are lots of deniers out there. Ed Balls, the Labour shadow chancellor is saying what we all know - when there is fear in the air, we all hide (cityam).

My key gripe is why nobody is admitting that the world's fundamentals are in a bad place. Markets are over valued (plunging gold is a big clue) but the main reason is China.

China is ready to go puff and the DDD gang will soon be sent to Coventry.

China has conveniently been the antidote to western red tape and high labor costs. It has hoovered up the worlds manufacturing and thanks to its fixed currency has boomed on the back of its exports. The ruling party in China is old school. As long as there is growth, for growth is the opium of the masses, then its people will not complain. Coupled with back door imperialism (e.g. buying African land for its commodities) and controlling the USA buy buying its debt, China is a happy white bunny.

But I am alarmed. The Chinese flag waves outside the Bank of China (property week) opposite the Bank of England. The Chinese banks own lots and lots of Chinese real estate, much which is empty and over valued. The Chinese banks don't really bother with Basel 3 or regulation so why should we be treating them as if they were ok?

You see China is about to burst. It may already have for we cannot verify its statistics. We will only know when China starts selling some of its US debt. Once that happens crash 2.0 will be with us. Be warned.

Apology

I have posted some rants about the Bank of England. Now I realise the MPC knew growth was negative and the thought of stagflation was so terrifying they just left rates at 0.5%. So I am sorry for calling the MPC useless. They are just cowards. I mean what would you do?

Unemployment Rising.
Inflation rising and above its competing countries.
Austerity cuts are not even cuts, just a slow in growth in public sector spends.
Falling disposable incomes.
Ageing population.
Obseity epidemic.
Health and Safety epidemic.
Bankers being taken to Tyburn.
Growth turning negative.

Answers on a postcard please to the Complaints Dept, Bank of England, London EC1 UK.

George Osbourne.

He seems like a nice guy but blaming some snow for a dip in growth is a bit pathetic. A quarter is 3 months and it snowed for a couple of weeks. And hardly at all in London. Does he know what he is doing? Is he getting advice from Alan Johnson's body guard?

Today's shorts:
Euro to be broken up by 2016 (bloomberg)

Sky leaking onto youtube to fire deadwood; UK government to do the same (telegraph)

Today's longs:
Mervyn King now runs the UK (bloomberg)

King defends the useless (google / ft.com)

Gossip:
George Obsourne's next excuses will involve the wrong types of leaves and engineering work over runs. And that flock wallpaper is now in fashion.



Tuesday, January 25, 2011

Are UK Economists BBC Weathermen in disguise?

UK GDP © ONS

News comments:
Here is the conclusion of a survey carried out by the FT a couple of weeks ago:

"Britain’s deficit-reduction programme will remain on track this year because tax rises and spending cuts will not stunt growth enough to cause a double-dip recession, according to a large majority of economists polled by the Financial Times.

In the survey of 78 economists, including 10 former members of the Bank of England’s monetary policy committee, 43 thought the deficit reduction plan would be “on track” by the end of the year."

Jan 4 FT.COM

Austerity won't trigger double-dip recession, economists say (Guardian)

Here are some of today's headlines:

UK suffers Double Dip (bloomberg)

Bank of England are useless (telegraph)



Monday, January 24, 2011

We are all going to starve to death

Chocolate

Chocolate is expensive © fintag

News comments:
Throughout history when things get tough, we blame sex. And so once again, there are calls for the culling of people to get the population down. Less people equals a fall in food prices. Apparently. In reality, the huge demand for food (when was the last time you saw a skinny person?) has actually brought food prices down to the lowest levels ever. Just like electric cars, when the demand goes up the prices go down. Technology and economies of scale. So I don't think we need to panic just yet.

One of the upshots of rising food prices is, unlike now where the rich are thin and the poor are fat, the rich will get fat and the poor will get thin. Now I don't want to be fat so these floods and fires are causing me some concern. However, in the short term panic is good for panic means price increases. In the long term we are all dead anyway so let us hope the short term lasts a long time.

Today's shorts:
Chocolate more expensive than Coke (telegraph)

Bread to become the preserve of the rich (reuters)

Today's longs:
US banks lure employees to their free canteens (telegraph)

The French decide to make all food transparent (reuters)

Old is the new black:
(see the cartoon)
Chocolate

Food is for the rich © fintag




Friday, January 21, 2011

The Bank of England knows how to CYA

Banks are evil

Bank of England © fintag

News comments:
The Bank of England is a joke. Take this "conclusion" on why rates were kept at 0.5%.

Page 47 ir10nov5.pdf

"At its November meeting, the Committee judged that the recovery was likely to continue. The outlook for inflation in the near term was higher than previously expected, in part reflecting higher import prices. But inflation was still likely to fall back in the medium term, reflecting the continuing downward pressure from the persistent margin of spare capacity. In the light of that outlook, the Committee judged that maintaining Bank Rate at 0.5% and maintaining the stock of asset purchases financed by the issuance of central bank reserves at £200 billion was appropriate to meet the 2% CPI inflation target over the medium term. But the prospects for inflation remained highly uncertain and the Committee stood ready to respond in either direction as the balance of risks evolved."

If I were a school teacher, these are the comments I would make:

At its November meeting, the Committee judged that the recovery was likely to continue [ON WHAT BASIS WAS THIS JUDGEMENT? STOCK MARKETS GOING UP DOESN'T MEAN THERE IS A RECOVERY? DOES IT?].

The outlook for inflation in the near term [1 DAY? 1 MONTH? 6 MONTHS? BE SPECIFIC PLEASE] was higher than previously expected [WHY DID YOU GET THIS WRONG? PLEASE EXPLAIN], in part reflecting higher import prices [WHAT PERCENTAGE OF INFLATION IS FROM IMPORT PRICES? WHAT ARE THE OTHER FACTORS? WHAT ABOUT ALL THE MONEY BEING PRINTED?].

But inflation was still likely to fall back in the medium term [DEFINE PLEASE], reflecting the continuing downward pressure from the persistent margin of spare capacity [UH? YOU MEAN AUSTERITY CUTS? PLEASE EXPLAIN].

In the light of that outlook, the Committee judged [ON WHAT BASIS? THE STRENGTH OF THE COFFEE?] that maintaining Bank Rate at 0.5% and maintaining the stock of asset purchases financed by the issuance of central bank reserves at £200 billion [SEEMS A RATHER ROUND NUMBER? HOW LONG WILL THIS GO ON FOR?] was appropriate [WHY IS PRINTING MONEY APPROPRIATE? DOESN'T PRINTING MONEY CREATE INFLATION?] to meet the 2% CPI inflation target over the medium term [WHICH IS WHAT? 1 YEAR? 5 YEARS? PLEASE EXPLAIN].

But the prospects for inflation remained highly uncertain [WHY ARE THEY UNCERTAIN GIVEN THAT IS YOUR JOB TO KNOW OR AT LEAST HAVE A GOOD IDEA] and the Committee stood ready to respond in either direction [UH? THIS IS A GIVEN SURELY?] as the balance of risks evolved [WHAT RISKS ARE THESE? YOUR JOBS PERHAPS?].

Today's shorts:
Despite rates being at historic lows nobody can borrow (rtt)

Unless you want £400 from Wonga at 3000% APR (wonga.com)

Today's longs:
Factory Gates are to blame for UK inflation (reuters)

Gossip:
Bank of England's MPC to cut back on the quality of its biscuits.



Greed, envy and stupidity

Aberdeen Salmon

Aberdeen Salmon © fintag

News comments:
Aberdeen Asset Management. UK's largest independent asset manager (nearly GBP200bn AUM) that cleverly bought distressed DB and CS divisions in 2008 and helped boost its revenue and AUM. Stock price has risen 60%+ so you would thought the CEO should be applauded and allowed his GBP5m plus package (salary + bonus + share sales). But no. The shareholders put their foot down (herald scotland).

Something a bit odd there. Perhaps all financial institutions should turn into non profit organisations...

Today's shorts:
Alan Johnson RIP. Welcome to Ed Balls (cityam)

Today's longs:
Germans spit on Irish and Greek peasants (bloomberg)

Gossip:
How to Navigate a Prime Brokerage Agreement spam to bring the internet down.



Wednesday, January 19, 2011

Why I love a Banker

Goldman Sachs Pencils

Goldman Sachs Pencils © fintag

News comments:
The UK should be applauding the latest news on bankers' bonuses. Every pound announced, 50% goes to the government via tax. In some cases, when you add on National Insurances this goes up to 65%. So let us all celebrate. With the small amount left, the bankers can keep London's restaurants alive as well kitchen shops, car dealerships and the thousands of workers like cleaners and nannies.

Goldman Sachs GBP10 billion bonuses (telegraph)

So why are Hedge Fund managers and Football players escaping the media's wrath?

Take premiership football players. These people work a few hours a week and earn more than most bankers. Many of them pay as little as 2% in tax. Why? Because unlike Bobby Diamond who has no image rights, Wayne Cole et al have the ability to put their abilities into intellectual property companies as image rights. They take out a huge loan and then pay 50% on the 4% HMRC interest rate agreed for these types of loans.

Football players avoid tax but nobody cares (accountancy)

As for Hedge Fund managers, most who work in London are non-dom and pay nothing except an entrance fee of GBP30k to be here.

Hedgies wipe backsides with Euro notes (daily mail)

Of course the worst tax evaders are mostly American who hide their assets in Switzerland.

Wikileaks to leak stuff (manx radio)

Today's shorts:
People who don't work in UK almost exceeds those who do (reuters)

Ever wondered how lazy Europeans are? (eur-lex)

Today's longs:
Bank of England to raise rates (reuters)

Gossip:
Latest trend to avoid tax is not to get paid.



Tuesday, January 18, 2011

Wake up Mr Media

Horse head

Horse news © fintag

News comments:
The latest news is all very amusing. But why isn't anyone writing about some of the abusive market goings ons?

Does Facebook hate Goldman with a passion? (kedrosky on bloomberg)

Is the average IQ of the MPC less then that of Ricky Gervais? (telegraph)

What aren't the regulators, politicians and media going mad over CBRE's attempt at blatant price fixing in the real estate world? (property week) (think about out ...once CBRE have set a price for crap property, all those banks with real estate crap will revalue their portfolios upward ...)

France admits its food sucks (telegraph)

China is just smoke and mirrors. Goldman says short because it is short (telegraph)

Today's shorts:
Bobby Diamond falls short (reuters)

Pirating is the new Jack Black in 2011 (guardian)

Today's longs:
Facebook is no longer for sale to Americans (reuters)

Gossip:
UBS to dump its emails onto WikiLeaks before WikiLeaks does [Editor: Eh?].



Thursday, January 13, 2011

FintagLeak: Bank of England Letter

Bank of England Letter

Bank of England Letter © fintag

News comments:
So the Bank of England are keeping interest rates at 0.5%. Despite inflation roaring towards double figures, the inactive MPC do what they do best - nothing. I wish I had that sort of job. (bbc)



Too big to fail

Too big to fail

Too big to fail © fintag

News comments:
It seems like only yesterday that Banks were the bad guys and would all be shot at dawn. Alas, and as to be expected because your average bankers IQ greatly exceeds that of your average regulator or politician, bankers are back to their old tricks. Frank Dodds and a few EU directives make the problem worse for they spread around the risk but don't solve the underlying problem: greed and limited downside.

Goldmorgan Stanley has no prop desk anymore; except it does but the regulators cannot see it. You think fees are now transparent? Get a life. Fees are as hidden as ever and always will be.

I noted the impressive building at Lothbury yesterday. Opposite the Bank of England a communist red flag waves proudly. So you think the Bank of China will behave like the rest of the worlds banks? Of course but only if it suits China.

You can only cure sex addicts by cutting off their balls [Editor: steady].

Today's shorts:
Shoppers leave UK (cityam)

Euro is ok. Euro is dead. Make your minds up please ...(telegraph)

Today's longs:
Goldman, Greece and Grubby behaviour (bloomberg)

Oil (reuters)

Gossip:
Fintag to publish his first novel later in 2011.



Wednesday, January 12, 2011

Nothingness

RIP Investment Banking

RIP Investment Banking © fintag

News comments:
January is an odd month. It truly is. We are all waiting for something big to happen but it hasn't happened yet.

Today's shorts:
Spanish banks: Are they in it for the long haul? (bloomberg)

UK in real doggy doo (cityam)

Official: Hedge fund managers are really dull and boring (reuters)

EU to print special Spanish Euros (ftalphaville)

Today's longs:
Spying film to be launched (telegraph)

Gossip:
Finbar Taggit to seak counselling following this report ...(metro)



Tuesday, January 11, 2011

Let's all get grumpy

Dog taxi

Taxi for dogs © fintag

News comments:
There is a correlation between grumpy media outlets and low grade analysis and writing. Twitter has succeeded in turning us all into 3 second goldfish. We can hardly. Read anything that has more. Than 4 words. I mean there I was after a decent austerity lunch in Peter Jones trying to climb into a taxi. Except it was designed for dogs. Just like the rest of the world. Going to. The dogs.

Portugal (telegraph). Apparently this country is bust. It is going to test the ECB and Germany and bring the Euro to its knees. As if. Portugal is tiny. Really tiny. If Germany were a person, Portugal would be a little toe. Now if we were looking at France or Spain (don't tell me you still think Santander is still a safe bank? What does Spain actually produce except over valued real estate and feed-in tariff solar panels?) then I would wake up. But nothing is going to happen because the ECB will just print more money.

So that loser Obama is in love with that other loser Sarkozy (daily mail)? Us Brits should be delighted. One term Obama may have missed a trick not getting to know and love Gordon Brown better but with the little French man as his new bitch, we have to really question Obamas integrity. Losers Inc.

Toyota is the new Microsoft (bloomberg). Toyota hates its customers and makes crap cars. Apparently. Despite all user surveys saying Toyota is what Volvo used to be, it is a failing company. As reported in Bloomberg (American owned) Toyota is pants. Long live Ford ...

Hedge fund inflows go up (hedgeweek). What does this mean actually? Should we be excited or sad? Should I factor this into my global macro model? Will I live longer? Will bankers bonuses go down as a result?

Bob Diamond is Nick Clegg in disguise (bbc). I never realised how many moles Bobby Geezer has. He needs to avoid the sun. Anyway, the UK hates banks. We hate the taxes they provide, the jobs they provide, the nice buildings they live in, their intellect, the clever way they don't do very much but make it very complicated in a sort of regulator versus banker type race.

Boy this is dull. Give me some better news to comment on. Please. (6 Characters left)

Gossip:
Finbar Taggit to be arrested for crimes against spelling.



Thursday, January 6, 2011

Facebook is worth 300 billion USD

Facebook

Facebook © fintag

News comments:
So Facebook is a bit like QQ so beloved of the Chinese, but without the spying and all the Ads ...;). QQ has over 600m active users and hence Facebook is but a poor relation, although that isn't stopping investors clambering to get a piece of it. And here is why.

My back of the envelope calculation shows Facebook is worth in excess of $300bn based on Official Facebook Stats and some pie in the sky assumptions beloved of the greedy.

Facebook has 500m users and 250m who logon everyday and spend 1.5 hours wasting time.

ADVERT REVENUE
Each active users spends 700bn minutes a month/250m or 2800mins a month on Facebook. That is 1.5 hours a day.

Superbowl adverts cost USD2.5m for 30 seconds or USD5m a minute to reach 100m viewers (wikipedia). To reach the 250m active Facebook users, a minutes advert would cost USD12.5m a minute.

If we assume the users only look at the adverts 5% of the time, then the amount Facebook could charge advertisers a month would be 5% * 12.5m * 2800 minutes = USD1.75bn a month.

That is USD21bn a year.

SUBSCRIPTION REVENUE
If we then charge each user $10 a year to use Facebooks advanced features and relying on the fact Facebook addiction is as bad as iApple addiction, we can assume 50% of the total 500m users would pay.

That is 10 * 250m users = USD2.5bn.

TOTAL REVENUE
Adverts: 21bn
Subs: 2.5bn
Total annual revenue: = 23.5bn.

FACEBOOK VALUATION
If we assume running Facebook costs USD3.5bn a year, we have an EBITDA of USD20bn.

QQ (Tencent) earnings multiples are about 15 (range being Google about 9 and Baidu about 31) (source: bloomberg) so 15 seems a good multiple:

Therefore USD20bn * 15 gives Facebook a USD300Bn valuation.

Today's shorts:
Goldman fee fest revealed (bloomberg)

Today's longs:
Goldman flooded with orders (wall street journal)

Gossip:
Facebook to help pay off the US debt.



Tuesday, January 4, 2011

Goldman to lead the Facebook IPO

Goldman want to lead the Facebook IPO

Goldman to lead the Facebook IPO © fintag

News comments:
Goldman buying a chunk (sky) of Facebook. Inspired. In doing so, they have set an IPO price. Add a premium and Goldman will get their chunk of change back plus as lead IPO placement agent will garner huge fees. Just like Goldman nurtured and IPO'd Ocado (business week), Facebook will be another loss making venture that gets listed and subsequently turns sour and burns before our eyes like myspace, bebo and friendsreunited. I know you all think Facebook is the new internet and google mail is only for those over 25, but we have heard all this before.

Next we will get Twitter valued at USD100bn and tumblr IPO'd at USD1 trillion. It is all 2000 madness.

But before that happens we will get the mother of all IPOs this year and the banks will make a killing. But Goldman will make a bigger killing which is what they are good at. For the rest of us it will be a stags wet dream.

Today's shorts:
Goldman irk the SEC again (bloomberg)
Euro Inflation Rampant (ft)

Today's longs:
Floating rate bonds please (bloomberg)
2011 to be the mother of all ... (wall street journal)

Gossip:
Goldman Sachs to be bought out by Facebook.