Monthly Archives:

January 2009

Are we about to have our own Smoot-Hawley moment?

This collapse in growth should not turn into a slowdown as severe as The Great Depression.  The scale and pace of the authorities’ response has been astounding, and brilliant.  We have done more in the last 6 months than the Japanese did in the first 6 years of their downturn, and we have avoided making the mistakes of 1929 when bank depositors lost their life savings, where taxes were hiked, r…

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The index of reprobates: downgrades for bank bonds and the impact on the high yield market

Let me start by restating our opposition to index investing when it comes to corporate bonds (we would say that, wouldn’t we).  An equity index is an index of success – as the company prospers and its market capitalisation rises, its weighting in the index increases.  Bond indices are buckets of failure.  The more a company borrows, the greater its weighting in the bond index.  If you follow a …

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Open letter to Mervyn King

Dear Mervyn

I see from your speech last night that you might start buying corporate bonds. Now that the Bank of England and the authorities have entered the prime broking industry through (a) repoing securities with banks (b) buying equity stakes in banks, and (c) writing insurance on debt, this is the next step in the Nation State’s aggressive move into financial services.

In my experience, wh…

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Moody’s predict surge in defaults

Moody’s this week released their expectations for their global speculative grade default rate. Their default model is now (rather belatedly) indicating that there is to be a surge in defaults through this year, with the global speculative grade (ie ‘high yield’) default rate peaking at 15.4% in November 2009.  Moody’s use a 12 month trailing default rate, so what they are saying is that 15.4% o…

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The Further Demise of ‘Supersub’ Bank Bonds

As our regular readers will know, we have been tracking Tier 1 (T1) capital’s fall from grace since last August. Unfortunately for these bank bond holders, the picture has not improved this week, with S&P and Fitch widening the notching between senior and hybrid debt on a number of European banks. This is because in their view (which has also been the long held view of our analysts) the risk/re…

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Eurozone in big trouble – rate cuts on the cards?

Some pretty horrendous looking data came out of the Eurozone this morning.  While the GDP and unemployment numbers were in line with expectations (Q3 GDP was confirmed at -0.2% and unemployment rose to a two year high of 7.8%), the business and consumer confidence numbers were horrific.  Economic confidence fell to a record low and consumer confidence was the lowest since records began in 1985….

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Happy new year

The start of another year is always a time to take stock, reflect on the last year and plan for the next. Last year was dramatic from an investment point of view, with equity markets having their biggest bear market since the great depression (and credit markets doing even worse) while government bond yields collapsed to post war lows.

All the way through this crisis we have focused on the stre…

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