Brian Bollen's Blog

To Fight or Not to Fight the World’s Central Banks

PIMCO’s latest Global Central Bank Focus article by Tony Crescenzi, Ben Emons, Andrew Bosomworth, Lupin Rahman and Isaac Meng

For decades, financial firms, captains of industry and investors who have bet against central bank actions have mostly lost. Hence the credo: Don’t Fight the Fed.

Once again, this fight-the-tide 'trade' is the topic of debate: Should you bet that the Fed’s colossal effort to reflate asset prices will end in colossal failure? What about the tidal wave of central bank activity abroad? Will it, against historical precedent, end in failure, too?

Confronted by more than 40 acts of interest rate and policy easing in six months by the world’s central banks, investors in late 2011 and early 2012 have decided not to fight, bidding up risk assets and providing a reprieve from months of drubbing.

Do you believe in horror stories? Well Look Around Because You’re In One…

Newedge – Blain’s Morning Porridge – Jan 31 2012

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: Bill.Blain@newedge.com

Do you believe in horror stories? Well, look around… you’re already in one...

I was charged with the heinous crime of being an Anglo-Saxon Banker yesterday. It’s the death penalty in certain parts of Europe. If being Anglo-Saxon, (which incidentally I am not – I’m a Celt), means being able to call a pile of manure a pile of manure and not a 'sustainable debt solution for Europe'… then I’m guilty as charged.

Mixed market this morning – looking for direction as stocks stablise and indices tighten. But, as January closes, we seem to have reached a new stage in the European debt farrago. Once again the inherent contradictions of European unity threaten to destablise the whole shebang. January markets were constructive on the back of the three-year LTRO, SMP bond buying and investors desperately looking for yieldy things to do with their new-year money. Unfortunately, the less clever of Europe’s blundership have been fooling themselves better markets meant the crisis was solved.

Democracy – One Woman One Vote. Merkel is that woman and she has that vote

Newedge – Blain’s Morning Porridge – January 30 2012

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: Bill.Blain@newedge.com

What’s the mood for this week? As markets open it feels like we are pausing for breath. Will the Risk-On rally reassert itself? Lots of buyers are still chasing catch up trades. Or will the latest EU summit leave markets more nervous? How messy will the approaching Greek denoument be – ordered or a train wreck? As we aren’t expecting anything particularly meaningful from the European gabfest, Greece has the greatest potential to derail an ongoing rally.

We held a well-attended conference call on Greek outcomes on Friday. (Unfortunately, it won’t be available on playback - we will have that facility on future calls). We covered a number of potential scenarios and addressed topics  including CDS triggers and cross-default. (Very happy to arrange follow up one-on-one calls on the topics we raised.)

Sometimes it's important not to know the answer to everything

Newedge – Blain’s Morning Porridge – January 27 2012

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: Bill.Blain@newedge.com

Today: Newedge ‘Greek Outlook and Outcomes’ Call - 2.30 London time.

What's on the agenda today? The rally continues. Unstoppable? When everyone is heading one way, perhaps it's time to think about heading the other?

But first: time for some gloating. I was delighted to read in the FT an unnamed senior trader quoted: ‘this rally has been a big surprise to most of us. We thought the ECB LTRO would boost banks with a backstop for funding, but the strength and the length of the [Peripheral Bond] rally was not expected’. Hah..! The morning after the LTRO was announced I'm on record (check out Bloomberg TV and Porridge), saying the three-year liquidity bomb meant it was time to fill your boots with Italy and Spain debt.

Comment in Porridge Dec 9: “Last night's abject failure of European politics matters not one jot. The key thing is the ECB is providing three-year long term repos. So, if I was a cynical bank treasurer, I'd be filling my boots with 6-7% yields from Italy bonds, and telling my management committee what a great job I was doing”.

Moody's Cuts European 2012 Auto Forecasts

Moody’s is predicting that Western European light vehicle demand is likely to be down 6.2% in 2012 compared with 2011 as a result of weakening economic fundamentals in the region.

Global Auto Manufacturers: European 2012 Auto Forecasts Revised Lower As Economic Challenges Continue is available on www.moodys.com.

 

Graphite Capital Ups The Ante

 Graphite Capital, a UK mid-market private equity specialist, has expanded its team with the appointment of Jack Langdon as investment manager.

Langdon joins Graphite after five years at Englefield Capital, where he worked on private equity transactions predominantly in the support services and financial services sectors. Langdon started his career as a strategy consultant at Oliver Wyman in London, advising multinational clients in a broad range of sectors with a focus on financial services. He has a first class degree in modern history from the University of Oxford.

 

 

Ball's To Join Baird

Robert W Baird, an employee-owned wealth management firm, says it is set to appoint Paul Bail as a managing director in London. Ball, who will join the team on February 1 from Investec Bank, will be responsible for expanding Baird’s debt advisory offering in Europe.

Baird says the appointment follows a record year in 2011, which saw the firm’s investment banking net revenues rise by nearly 50% on 2010 and by more than 40% from 2007 – the business’ previous record year. In addition, while other investment banks were forced to downsize, Baird continued hiring, increasing investment banking staff numbers by 17%, from 170 to 199, over the course of the year.

Blain Calls For Greece Conference Call: Book Your Place Now

Newedge – Blain’s Morning Porridge – January 26 2012

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: Bill.Blain@newedge.com

How many Olives in Bubble & Squeak? – Conference Friday to discuss

US rates on hold for next two years. Merkel begging the Davos leaders for time to solve the crisis…but time is not a commodity. It just happens…with monotonous regularity. I was told by a good friend yesterday they don’t talk about risk on/risk off anymore, but since everything remains a guessing game they use ‘fear on/fear off’.

Inevitably, Ireland, Portugal and Greece are headlining the news - but for very different reasons:

Harry Redknapp, Bungs and Broken Dreams

If you're interested in association football, and are following the Harry Redknapp bungs trial, I strongly recommend you read Broken Dreams by investigative journalist Tom Bower. It'll destroy your love of the game, of that I have no doubt, but it shines a very strong arc light on all those transfers of unknown players at grotesquely inflated prices that leave you wondering: Why did they do that?

Guernsey Still Tops: LSE

Guernsey remains home to more non-UK entities listed on the London Stock Exchange (LSE) than any other jurisdiction globally, according to figures from the market authority.

LSE data show that at the end of December 2011 there were 108 Guernsey-incorporated entities listed on either the Main Market, the Alternative Investment Market (AIM), the Specialist Fund Market (SFM) or as ‘Trading Only’.

This is comfortably more than the major economic powers of the US (47), Russia (33), India (31), Australia (26), South Africa (11), Germany (7), China (5) and France (4). It was also well ahead of competitor centres Jersey (69), Ireland (57), the Isle of Man (53), Bermuda and Cayman (both 45) and BVI (39). These are trailed by Luxembourg (14), Gibraltar (4) and Malta (0).

Hawkish Hawksford On Growth Path

Hawksford, an independent trust company backed by UK mid-market private equity firm Dunedin, reports that it continues its expansion with the acquisition of Trustcorp Jersey Limited (Trustcorp). The acquisition of the Jersey-based trust and corporate services provider makes Hawksford the largest independent trust company in Jersey.

We are told that this is the 11th acquisition made by a Dunedin-backed business in the last 12 months and that it is a prime example of Dunedin’s buy-and-build strategy of backing businesses with international growth opportunities.

GI/ISF Gongs For SGSS

Societe Generale Securities Services (SGSS) reports that it has received four ratings in the Global Investor/ISF magazine’s 2012 Sub-Custody survey, including “Top Rated” in Romania and Russia.

SGSS was rated in the following countries;

 Top Rated in Romania and Russia;

 Rated Second in Italy;

Rated Third in Spain.

This annual survey gives broker-dealers and global custodians the opportunity to rate their agent banks in four separate regions - Europe, the Americas, Asia Pacific and Africa/Middle East - across 10 different categories.

 

Bright White Shiny Things Make It All Better…

Newedge – Blain’s Morning Porridge – January 25 2012

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: Bill.Blain@newedge.com

Record Apple results – Bright White Shiny Things Make It All Better…

There were times yesterday when the bond rally seemed to be running out of steam, not so much on anything changing – but just getting tired. Greece? Who knows what happens – but I suspect messy. Lots of noise about agreement being reached…but nothing tangible. More of the same European mumble-swerve about will they/won’t they ramp up firewalls, fiscal rules and discipline, although Italy bonds continued to ratchet tighter – demonstrating the market isn’t listening to the politics, but buying what the ECB’s done.

The IMF calling the end of the world: “even lower global growth and escalating risks in Europe” registered, but not much effect. Today’s German 30-year auction should get out the stocks – but we aren’t expecting a blow out. All very ho-hum and wait and see…

But then…the stock market thrummed back into life on Apple’s quarterly revenues of $46.3bn, and a realisation the global economy might not be so mired after all. If 37m people can shell out for an I-Phone 4 with a new logo saying it’s an I-Phone 4s pasted to it…well…anything might be possible. Ah. The triumph of marketing and consumerism.

No longer a Greek Haircut, but more likely a shave and polish…

Newedge – Blain’s Morning Porridge – January 24 2012

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: Bill.Blain@newedge.com

Risk-Off or does the Risk-On rally continue? Bond market says the latter! On one hand, equities are opening red, but bank capital bonds are yet another technical point tighter. Germany saying it never agreed a €750bn ESM may cause a pause for thought, but Greece is an increasing irrelevance. Normal market behaviour during European crisis summits is for a rally then a slide as the hot air dissipates and we all see how empty the rhetoric was.

Greece was described as ‘a significant nuisance’ on the radio this morning. How true. Last night’s news the EU leadership aren’t prepared to agree a ‘sweetheart’ 4% PSI debt swap but want tougher 3.5% terms will further crystalise the market expectation that a Greek second bailout isn’t going to happen. Negotiating brinksmanship? Perhaps not. No-one has much left to lose re Greece.

Top 10 Tips From Schroders

Schroders head of global and international equities Virginie Maisonneuve shares her top 10 tips for global equities success in 2012

1.       Volatility will continue to be driven by Europe and sovereign issues; the fear of China’s hard landing; and the impact of many elections in the world.

2.       Maintain a balanced portfolio anchored around growing defensive holdings in staples and health care and quality cyclicals, especially in energy and materials.  

Do not get out of cyclical stocks all together.

3.       Make sure you own enough US stocks. The US is recovering slowly but is ahead of Europe.

Actis Waxes Lyrical On Brazil

From São Paulo comes the news that Actis, a global private equity investor in the emerging markets, has invested $102m acquiring a significant minority stake in Brazil´s prestigious University Cruzeiro do Sul Educacional.

Founded in 1965 Cruzeiro do Sul Educacional today has a total of 36,000 students across eight sites. Offering both undergraduate and postgraduate study, long distance learning and higher education the University has been widely recognised for its academic excellence.

Cruzeiro do Sul Educacional is currently made up of three institutions; the University Cruzeiro do Sul (São Paulo-SP), Centro Universitário do Distrito Federal (Brasília-DF) and Centro Universitário Módulo (Caraguatatuba-SP). It was awarded the highest grade by the National Institutional Evaluation Committee.

Citi Takes Flight With RAFI Series

Citi and Research Affiliates jointly report that they are launching a new global sovereign bond index series based on measures of size. The Citi RAFI Bond Index Series decreases exposure to aging and debt-laden economies such as Japan and the United States and increases exposure to younger, resource-rich countries such as Australia and Canada. The series extends the pioneering Research Affiliates Fundamental Index (RAFI) methodology to sovereign debt.

Traditional bond indices weight securities based on market capitalisation, which results in investors making their biggest bets on the biggest debtors. The new series weights each country by its economic footprint.  

Specifically, each country’s weight is calculated via an equally weighted average of four factors — GDP, energy consumption, population and rescaled land area.  As a result, this methodology results in country weights that reflect each nation’s ability to service its debt, which has become a growing concern as the sovereign debt crisis evolves.
The Citi RAFI series provides significantly different weights to countries, as can be seen in the table below listing the top five country weights for the respective indices:

Advisers Face New Reporting Regime: KPMG

As investment advisers take stock of their 2012 regulatory obligations, advisers to private funds should focus significant attention on the new and complex regulatory reporting requirements adopted by the SEC in November, according to KPMG, the audit, tax and advisory firm. 

As adopted by the SEC, Rule 204(b)-1 will require registered investment advisers to private funds to report substantial amounts of never before required information to the SEC, for eventual submission to the Financial Stability Oversight Council (FSOC) for the purpose of monitoring systemic risks to the U.S. financial system. The SEC has also made clear its intention to use the information to assist in fulfilling its supervisory responsibilities.

The Long And The Short Of It: PerTrac

Long/short equity is the most popular strategy pursued by Alternative UCITS (Undertakings for Collective Investment in Transferable Securities) funds, according to PerTrac, a provider of analytics, reporting and communications software for investment professionals. Overall, it adds, funds invested in emerging markets have posted the best performance from January 2002 through October 2011.  A 30-page report - titled The Coming of Age of Alternative UCITS Funds - also indicates that smaller funds outperform larger ones based on a comparison of equal-weighted and asset-weighted cumulative return of PerTrac’s Alternative UCITS Fund Index.

The PerTrac report claims to be the most comprehensive study of Alternative UCITS funds conducted to date. Alternative UCITS funds are pan-European investment vehicles that pursue hedge fund-like strategies, but are limited in leverage and the range of illiquid assets into which they can invest.

Pah! And Fiddlesticks! To Data Explorers Automatic Writing

My initial reaction to the following news is to scoff, and say Pah! And Fiddlesticks. My second reaction is to say that it will be interesting to see if the automated newswire being proposed will pump out material that is any less intelligible than some of the bilge emanating from existing market players (present company included).

Data Explorers, a provider of securities lending data, tracking short selling and institutional fund activity across all global market sectors, says it has partnered with Narrative Science, a Chicago based technology company whose artificial intelligence system transforms data into stories and insights, to create the world’s first securities lending newswire for its customers.

Narrative Science, we are told, helps companies create editorial content at a speed and scale that was not previously feasible. The company’s artificial intelligence system takes raw data and transforms it into narrative content including stories, insightful business reports, tweets and more.