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Mint – Blain’s Morning Porridge  - March 6 2014

While troops who look like Russians but aren’t Russians traipse across the Ukraine, and diplomats diplome in Paris, markets are moving on. The new issue market is on fire – fuelled by a wall of new money that has absolutely nowhere else to go. Short-term tactical sentiment remains focused on the immediate news headlines and risk-on/off snap. Medium term, it's not so much mindless contagion, but real world implications. For instance, if Ukraine “heats up” then what will be the effect on wheat prices? – it’s a large producer – and what are the knock-on effects for countries dependent on food imports.

ICMA European Repo Council Best Practice Guide

ICMA’s European Repo Council (ERC) has launched its updated guide to best practice in the European repo market, setting out standards for the orderly trading and settlement of repos. Much repo trading in Europe is between banks in different countries, making it essential to have consistent, internationally-recognised standards.

Towers Watson Names Ed Francis EMEA Head

Global professional services company Towers Watson has appointed Ed Francis as EMEA head of the company’s investment business, effective immediately. He succeeds Chris Ford who, after holding this position since 2011, has assumed the role of global head of investment.

Fragile Five Turn Frugal

Jan Dehn, Head of Research at Ashmore, discusses why events in Ukraine are a reminder of how damaging the Cold War was for Emerging Markets and why the ‘Fragile Five’ are gradually turning into the ‘Frugal Five’

He doesn’t measure his wealth in private jets

Mint – Blain’s Morning Porridge  - March 5 2014

He doesn’t measure his wealth in private jets, but purchased souls…

Fascinating yesterday as Ukraine worries evaporated and the markets went all bullish. New highs in US stocks, and a banner day in the new issue bond markets. What’s to worry about? Well, you know we will find something… If there are backstories to markets, then don’t assume anything is really fixed. I’m thinking about where China and Russia are relative to this global rally. I’m thinking selective sells into strength.

But first the new issue market. Nationwide’s new Tier 1 6.875% CCDS Perp was the predicted blowout with a £10bn book, and rallied to 102! Everyone loved the fixed coupon. My concern is the discretionary coupon set by the board on the initial 10.25% CCDS deal launched last year…

If I was on the board of the building society and saw the yield on a fixed deal at 6.5%, then I’d be sorely tempted to cut the discretionary rate – which would, of course, kill the goose. But long term, if new deals are fixed, then the first deal becomes a bit of a one-off. Interested in any views on these deals?

This morning there are a screed of new capital deals hitting the screens which we like – Danske and Santander – which look interesting albeit not so exciting or give away as yesterday’s blockbuster. If you want help valuing them, give Graham or myself a call. (If you haven’t got a copy of my recent primer on CoCo bonds, happy to share…) 

Back to China.. where the People’s Congress confirmed the 7.5% target growth rate (which is a big ask), a war on pollution and increased spending on “defence”. Oh dear.. does that mean unpleasantness is brewing on deserted islands in the South China Seas? Doubt it. China is aggressively easing to support the economy via weakening the yuan and easy rates to underpin growth. The last thing they want is an international fracas like Ukraine that might test the economy. 

But in the background of the Congress news is a domestic solar panel maker, Shanghai Chaori Solar Energy Science and Technology. It is likely to default on a yuan bond issue on Friday. We’ve known the solar sector was in trouble (a surfeit of manufacturers, overcapacity and allegations of dumping into European markets), but when it happens it will confirm the attitude to default is changing – first domestic default since 1997 says Bloomberg.

The upside news is the China government will maintain proactive fiscal and monetary policy to drive the economy, while the consensus in analyst reports is the Chaori default is unlikely to trigger systemic crashes, and even that “China needs a default”. The discipline it will inject into credit markets should be welcomed rather than feared. But other sectors to worry about include shipbuilding, heavy industries, wind, steel, cement, glass, aluminium, property and local-government entities. So building bigger tanks for Chinese soldiers (because they are better fed, they don’t fit in 1970-designed AFVs), may be the area to invest. Hope not.  

Although the invisible hand “rescue” of defaulting trusts and pretend and extend lending across vast swathes of Chinese industry via the bloated shadow banking system is causing loads of investment heartache, what’s the likely overall downside? A challenge for China to manage change and a slowing transition economy? That’s why so much of the rest of the stuff emerging from the Congress meetings is about reform, environment and community – redirecting the economy to consumption harmony.

However, it’s equally clear the looming crisis in shadow banking expansion and obsolete industry blocks mean it’s time to be selective and careful. It’s not necessarily a disaster across the board, and expectations China is on the verge of its own Lehman moment are probably wide of the mark.

The outlook for Russia feels very different. That’s all about energy – and the likely trouble that is being priced in across the economy as Russia’s energy exports to Europe are factored in. If Europe quickly embraces alternatively sourced LPG and reopens the nuclear debate, (nuclear power is not about economics – it’s about emotion, and if ever there was a time to be playing to German voters’ emotions it’s while the bear is waking in the forest!)

Crimea – because that is what the Russians care about – is going to be a difficult win for Russia unless it can quickly come to a face-saving agreement with Europe. The whole Ukraine story still has the capacity to surprise!

Out of time..

Bill Blain

0207 786 3877

bblain@mintpartners.com

bblain5@bloomberg.net

 

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The impact of rising commodity prices, as a result of events in Ukraine, could have a knock-on effect on market sentiment and economic growth.

There are echoes of the Georgia-Russia crisis of 2008 in current events in Ukraine, with the difference being that Ukraine has greater political significance.



When we hang the capitalists,

Mint – Blain’s Morning Porridge  - March 4 2014

When we hang the capitalists, they will sell us the rope to use...

Very quick comment this morning as I’ve been playing catch-up all morning. First message is don’t get fixated on Ukraine – there is lots of other stuff going on. Second message is we do have to talk about it, and spot the opportunities it has revealed.

Ukraine and “risk-off” dominates the headlines and mood – but this is not a time to be sitting doing nothing. This “crisis” has escalated faster and beyond the principals limited imaginations, but it throws up all kind of potential economic stimulus and new global growth strands around the “Europe and Energy” dynamic.

Ukraine/Russia: No Moral High Ground For The West

In the Financial Times today I read that John Kerry, the US secretary of state, said on a BCS programme, Face The Nation: “You just don't in the 21st century behave in a 19th century fashion by invading another country on a completed trumped-pretext.”

Quite unlike, say, the USA leading a coalition of countries in invading Iraq?

That's the problem for the leading western countries. Such has been their military blundering over the past 14 years or so, they've destroyed their moral ground. There is none left for them to occupy them. What's sauce for the western goose is sauce for the Russian gander.

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We would not be too concerned with an equity market correction, says Tim Wilson, manager of the Newton Managed Income Fund, with such a pull-back likely to provide a source of opportunity for investors.

International Women's Day, Female Empowerment, Sugar Daddies: Discuss

This just landed in my in-tray this morning and I feel compelled to share it, not least because it makes me want to vomit. I'm no feminist but this seems to me to go against every element of modern, western womanhood. Am I missing some subtle irony, perhaps?

International Women’s Day marks the date when events are held worldwide to inspire women and celebrate achievements in gender equality. In honor of this day, SeekingArrangement.com is releasing their list of “Top Countries for Careers Staffed by Sugar Daddies.”

Top Countries for Careers Staffed by Sugar Daddies:

1. United States: Lawyers and Sales Managers

2. Canada: Finance Managers and Accountants

3. United Kingdom: Chief Executives and Business Advisors

4. Australia: Marketing Directors and Financial Analysts

5. Colombia: Secretaries and Project Engineers

The site polled 15,285 female members worldwide, ranking the top countries where women launched their careers with the help of a benefactor. The United Kingdom ranked number three, with 3,109 women reporting that they landed jobs working for their Sugar Daddies.

“Before SeekingArrangement, I worked retail and sold clothes I couldn’t afford,” says Tamra, 23, from Los Angeles. “Now, I work for a law firm owned by my Sugar Daddy. I'm wearing Prada, and on my way to making partner.”

Pass the sick bag, please.

 

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Euroclear Reports Record AUC

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Brazil's GDP Beats Expectations

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G20 Conflict Averted

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Heading into last weekend it looked like there would be warfare of the verbal variety in Sydney at the G20 gathering of policymakers, and potentially of the physical variety in Ukraine. The first didn’t happen, at least in public, and the second has been averted for now.

The female all too often wins...

Mint – Blain’s Morning Porridge  - February 26 2014

When the indestructible meets the irresistible, the female all too often wins...

Markets have finally woken up to what’s happening with the Renminbi. We’ve been watching the slide, the hints of a wider collar, and anticipating the signals being sent about China bank rates, relationship to the dollar, growth indications and expectations, and attempts to redirect outward investment back into domestic consumption.

Give me honourable enemies rather than ambitious ones

Mint – Blain’s Morning Porridge  - February 25 2014

Give me honourable enemies rather than ambitious ones, and I’ll sleep more easily by night

Have we moved into a new market phase? Sure, the news is dominated by uncertainty about Ukraine, concerns on China and EM, and there are more than a few Cassandras shouting about asset bubbles… but generally, the underlying market going feels firm.

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