Monthly Archives:

June 2007

Not waving, but drowning

I thought I’d quote the introduction of a piece out today by Albert Edwards, Dresdner’s Asset Allocation strategist:

Warren Buffet said "Only when the tide goes out do you discover who’s been swimming naked." As the US housing tide recedes, the skinny-dippers are racing up the beach to find their beach-towels. But this is not a crisis driven by the US sub-prime mortgage debacle. The housing slu…

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Investors Strike Back

It would appear that the distinct lack of confidence that I alluded to yesterday, (see here) has led to one or two interesting developments in the primary markets (the market for new debt issuance). Private equity houses KKR, Clayton and Dublier & Rice were, yesterday, forced to drop their bond offering funding the acquisition of US Foodservices. Covenant weak leveraged loans have also been rec…

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“Liquidity is confidence” according to Fed Governor Kevin M. Warsh and right now it feels like confidence and liquidity in financial markets is starting to ebb. Why you ask ?

Well first the evidence. Volatility has returned. As I write, volatility as measured by the Vix Index is currently at levels approaching those witnessed back in late February and early March. The world’s major equity indic…

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Water water everywhere, nor any drop to drink

Just as Samuel Taylor Coleridge’s thirsty mariner lamented that he had nothing to drink despite being surrounded by water (it was sea water), Iranians in Tehran are rioting over a shortage of gasoline. Iran is sitting on the second largest conventional crude oil reserves in the world, second only to Saudi Arabia, and yet the government has suddenly imposed gasoline rationing. Drivers are being … Read the article

The UK consumer – outlook is dour

Graham Secker, Morgan Stanley’s equity strategist came in to give us his top down views on markets last week. I’ve attached an interesting chart that he produced (click on chart to enlarge). You’ve probably read a lot about the forthcoming wave of mortgage refixes in the UK – rising rates mean that those coming off old "cheap" deals are re-financing at higher rates, and Morgan Stanley have trie…

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Does it matter if Mervyn King starts getting outvoted on the MPC?

Just a quick one to point out Roger Bootle’s article in this morning’s Telegraph. He wonders whether the MPC will lose credibility if the Governor is consistently on the wrong side of the interest rate vote. It’s only happened twice so far (most recently at the start of this month when he was in the minority calling for a hike), but Bootle thinks that his position becomes untenable if it become…

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Pop goes the credit market?

On Wednesday, Mervyn King took on the role of the central bank’s chief toast master at the Lord Mayor of London’s Banquet – cue fine dining, full formal dress, a large hall and obviously fine wines. Central bankers are not known for their singing talent, so he entertained the audience with a slice of his views on the outlook for monetary policy in the UK, ranging from the practical (how to impr…

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Swans, turkeys and tigers – the false security of the bell curve

I’m reading The Black Swan by Nassim Taleb. Before Australia was discovered by Europeans, the idea that a swan could be anything other than white did not exist. The book’s premise is that we are deluded in using historical models to predict future events, be they world changing political moments, or risk and return in financial markets. He talks about the ludic fallacy – “believing that the str…

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Are central banks targeting the correct inflation measures?

For monetary policy to work, it is essential that central banks target the correct inflation measure. There are a number of differences in the way that inflation can be calculated – for example, the Bank of England and the ECB target headline inflation, while the Federal Reserve focuses on core inflation (which strips out energy and food prices). If central banks are looking at the wrong inflat…

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Leveraged Buy In (LBI) – the new buzz word in the City

OK, I actually just invented this term myself, but I think it very accurately captures what’s currently going on in the bond and equity markets around the world. For a few years now, private equity funds have taken advantage of low bond yields and high equity earnings yields by issuing lots of debt very cheaply and taking companies private. Finance directors of companies still publicly listed h…

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