Monthly Archives:

July 2011

The quest for the safe haven; one haven that’s justified, one that’s certainly not

A lot of the cash that’s been created over the past few years is sloshing around the world trying to find somewhere to hide. There has been a huge bid for anything deemed a safe haven asset, a bid that has been propelled by an imploding Eurozone and US politicians that are seemingly looking to bring its $14 trillion poker game to a spectacular finale by committing collective hara-kiri.

The prob…

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A light in the storm – the German economic boom

There is a shining light amidst the storm of the European sovereign debt crisis. Europe’s largest economy, Germany, is booming. Since June 2009, the German Federal Statistical Office has had the pleasure of notifying financial markets that the German unemployment rate has fallen. Today we received further confirmation of the strength of the German labour market, with the German unemployment rat…

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Forget stress tests – ring fencing banks from sovereigns is the real issue

So the results of the bank stress tests are out. Do they add anything from an investor viewpoint?

Well, despite the best efforts of the European banking Authority, we didn’t get the harmonised EU data we were hoping for. To say that there are inconsistencies in the data would be an understatement.

Disclosure varies hugely bank by bank, especially in areas such as their Loan to Value ratios for …

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Greece and the Deathly Hallows

This weekend’s family activity centred on the final film in the Harry Potter series, Harry Potter and the Deathly Hallows, 10 years on from when we saw the first instalment of the magical film series in 2001. Meanwhile in the Monday to Friday muggle world, the markets are focusing on the modern classical tale of Greece, that also began 10 years ago in 2001 when they entered the European Monetar…

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European bank stress tests, Road to Nowhere or Highway to Hell?

The European Banking Authority’s bank stress test results are due out on Friday evening.  Do the results mean anything or is it one for the talking heads? In our view it is a bit like taking a driving test – you can pass the test and yet still be a terrible driver.

The real test of whether anyone trusts you is whether people are prepared to get in the car with you. So whether or not banks pass …

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The Cautious Contrarian

By nature I would say I have a tendency towards pessimism. Hopefully the odd sleepless night is a price worth paying for a successful career in bond investing, however it does leave me worrying (there’s the pessimism) that I could miss out on opportunities when markets sell off. It takes a brave investor to buy when all around are selling. Recent market moves and a book I read at the weekend ha…

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UK Retailers – looking for bargains during the summer sales

One section of the European high yield market that has materially under-performed this year is the UK retailer and food producer complex. The rationale is fairly easy to explain: these companies are being squeezed by cost input inflation on one side (cotton, grain, cheese, sofas, whatever it is, it’s more expensive to source) and on the other side, the end customer (the UK consumer) has less mo…

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Tail about to wag dog again – Italy and Spain downgrades are coming, more carnage to follow

So now we know that the firewall was indeed an illusion.  We had the biggest ever sell off in Portuguese and Irish CDS on Wednesday (and the second biggest sell off in Greece CDS), and now it’s a bloodbath in Italy.  Italian 10 year bond yield spreads have widened 25 bps versus Germany to a Euro era record.  Long dated Italian government bonds fell as much as 2 points earlier today.  Unicredito…

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Orthodox in an unorthodox world

The main purpose of the European Central Bank (ECB) is to use orthodox monetary policy with regard to setting money supply and interest rates to achieve price stability. Today, Trichet reiterated this by restating his desire to “create price stability for the 331 million federal citizens of the Eurozone.” In order to do that, the ECB believes that a combination of controlling money supply and i…

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Portugal downgraded to junk – Portuguese corporates ejected from the credit indices

As a direct consequence of Moody’s downgrade of Portugal to sub investment grade, now Ba2 to be precise, Portuguese corporate bonds will be removed at month end from Bank of America Merrill Lynch’s (BofAML) main investment grade and high yield indices. This is because the main BofAML indices require the sovereign to have an investment grade rating. (It also looks as if Portuguese corporates wil…

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