Tag Archives: Finance

>U.S.: Fed is not alone in buying Treasuries


I Get By with a Little [or A LOT] of Help from my Friends!!

U.S. Watch

In February economic forecasters were quite up beat about the economic outlook. At the time, incoming data were on balance consistent with an acceleration of economic growth. However, statistics released in March quickly started to point to less momentum, a trend that extended in April. By mid month, it was evident that the U.S. economy was hitting a soft patch in Q1. The extent to which reported data were weaker than generally expected over that period is captured by the Citigroup Economic Surprise Index. The rolling three-month index, calculated daily, has contracted significantly since the first week of March and it is still loosing ground. For many, the weakness in reported data and the apparent dovishness of key Fed officials largely explain why 10-year Treasuries closed last week yielding only 3.15%. Obviously, these factors are at play. However, we think it is worth noting that foreign central banks have been hefty buyers of US securities more recently. From April 6 to May 4th, holding of securities held in custody at the Fed for foreign official and international accounts have jumped by more than $51 billion. This did happen while the Fed was proceeding with its large purchases of Treasuries, adding more than $80 billion to its own bonds portfolio. While all the stars appear to have been aligned to pull bond yields lower, it remains to be seen for how long hefty demand from central banks will last. For one, the Fed will be done with QE2 by the end of June. In that context, our belief that GDP will rebound above 3.5% in Q2 make us sceptical about the sustainability of the recent bond rally.


Source: National Bank Financial Group, Paul-André Pinsonnault, Senior Fixed Income Economist


>Financial Times: Commodity hedge fund loses $400m in oil slide


Its about time to start revising the standard deviation models…. 
 May 08 2011 10:00 PM GMT
Commodity hedge fund loses $400m in oil slide

By Sam Jones in London

World’s largest commodity hedge fund is the biggest of several large hedge funds believed to be reeling after the recent unexpected sell-off

Read the full article at: http://www.ft.com/cms/s/0/2b9bfa74-79a0-11e0-86bd-00144feabdc0.html?ftcamp=rss

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>Teflon Stevie, forever?

>Just as the days of the teflon market are coming to an end, so slowly prosecutors are finally discovering all the grizly details of how one make billions of dollar year after year without fail. And when they put the full picture together, teflon Stevie is next.

>FT Alphaville » If algos can mis-value a book by $23.7m…


If algos can mis-value a book by $23.7m…

… how might they be mis-valuing equities?
So asks Themis Trading on Tuesday after discovering this curio of a story from CNN about algo-bots gone wild on Amazon.
The story relates to the listing of a book called “The Making of a Fly” by Peter Lawrence on Amazon.com on April 18 for no less than $23,698,655.93 (plus shipping) — seemingly the result of an algo price war.
The price anomaly itself was unearthed by Michael Eisen, an evolutionary biologist and blogger, who logically observed this couldn’t be a one off situation.
As he noted on his blog:

What’s fascinating about all this is both the seemingly endless possibilities for both chaos and mischief. It seems impossible that we stumbled onto the only example of this kind of upward pricing spiral – all it took were two sellers adjusting their prices in response to each other by factors whose products were greater than 1. And while it might have been more difficult to deconstruct, one can easily see how even more bizarre things could happen when more than two sellers are in the game. And as soon as it was clear what was going on here, I and the people I talked to about this couldn’t help but start thinking about ways to exploit our ability to predict how others would price their books down to the 5th significant digit – especially when they were clearly not paying careful attention to what their algorithms were doing.

Cue in-depth analysis of third party vendors providing pricing algorithms for independent traders on Amazon and Ebay.
As CNN points out, individual booksellers on Amazon and other sites pay such companies for services which automatically update prices. Some work very well, “getting sellers up to 60 per cent more sales because they underbid the competition automatically and repeatedly”.
Some, as the case above illustrates, lose touch with reality altogether.
Now, as Themis Trading points out, all of this does bear an uncanny resemblance to what’s going on in financial markets thanks to the algo strategies deployed by high frequency traders.
These sorts of algos, after all, are equally prone to losing touch with the fair value of the equities they are pricing, as the notorious flash-crash of May 6 proves. Now, if you keep the parallel going, that means the example of the $23.7m fly book is nothing more than Amazon’s own equivalent of a market flash or dash.
As Themis’ Sal Arnuk observes:

So, now we have Flash Crashes and Flash Dashes outside the stock market! Is everything being priced in the universe today, not with forethought, but rather as some relation to another price, which in turn is set in relation to yet another price? All without human intervention? Is this wise? Is anyone doing the thinking? Is anyone doing “the work” in our stock markets, as well as on AMAZON? On the eve of the May 6th Flash Crash, perhaps it is wise to think about that question.

Of course, while most ‘flash crash day’ trades were cancelled in the end, we wonder how many Amazon buyers who realise they’ve been had via algo mispricing end up cancelling their trades. And how often it happens.
Secondly, does this make Amazon and Ebay the dark pools of the retail sector, with John “never knowingly undersold” Lewis the equivalent of a market exchange?
And last – is it time for a retail versus financial market structure comparison diagram? We think yes

FT Alphaville » If algos can mis-value a book by $23.7m…

>Spain backtracks on China investment claim


What fools they look like, but then again, this is nothing new for Zapatero

Spain backtracks on China investment claim

By Miles Johnson in Madrid
Published: April 14 2011 13:57 | Last updated: April 14 2011 13:57
The Spanish government has been forced into an embarrassing reversal after claims that Spain had secured up to €9bn in investment in its troubled savings banks from China were denied by Beijing.
Spanish government officials said an “error of communication” had led to claims that China Investment Corporation, one of the country’s sovereign wealth funds, was considering the €9bn investment after José Luis Rodríguez Zapatero, Spain’s prime minister, met Chinese leaders this week.
“China has said it will continue to buy Spanish government debt, and is interested in participating in the restructuring of the savings banks, but it is too early to name specific amounts of investments,” the Spanish government said.
Mr Zapatero is on an official visit to China and Singapore to meet Asian investors to promote Spain’s government debt and financial sector.
A CIC official earlier told Reuters that reports in the Spanish media of the investment were false. CIC is known to no longer have available funds to invest abroad, and the €9bn ($13.5bn) figure would dwarf its largest previous investment which was a $5bn stake in Morgan Stanley made in 2007.
The admission of error came as Spain’s central bank was finalising its approval of plans submitted by the country’s regional savings banks, known as cajas, to raise new capital to meet a €15bn shortfall that has shaken investor confidence in the stability of the Spanish economy.
The previously little-known and privately held cajas were left gasping for new capital after loans made during Spain’s property bubble began to sour and its economy fell into recession.
Tough economic reforms led by Mr Zapatero’s socialist government, including freezing civil service pay and slashing Spain’s budget deficit, have helped the country partially regain the confidence of financial markets after some investors had started to view Spain as being at risk of following Greece, Ireland and Portugal into taking European Union rescue funds.
The interest investors demand to hold Spanish government debt over German bonds has fallen sharply since the start of the year.
On Thursday, however, after the confusion over Chinese investment in the cajas and ahead of the finalisation of their own capital raising plans, the spread between Spanish and German 10-year debt rose by 9 basis points to 190bp.
Spain’s outreach to China for investment comes after the prime minister of Qatar said in February that his country would invest €300m in Spanish banks after expressing confidence in the Spanish economy during a visit to Madrid.
Since then there have been no further details about which institutions Qatar would invest in, nor what form any investment would take.

Copyright The Financial Times Limited 2011.

FT.com / Europe – Spain backtracks on China investment claim

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By Samantha Pearson in São Paulo and Andres Schipani in MiamiPublished: April 11 2011 19:08 | Last updated: April 11 2011 19:08
Brazil's biggest bank by assets and profits is poised to become the first in the country's history to acquire a US retail bank, as surging profits and a strong local currency pave the way for international expansion, according to people close to the negotiations.
State-owned Banco do Brasil is in advanced talks to buy Eurobank, a regional lender based in Miami, for an undisclosed amount according to people close to the negotiations. Acquiring the bank, which has three branches in Florida, would give Banco do Brasil a vital foothold in the US market as well as access to lucrative money remittances from the state's Latin American residents. Banco do Brasil later confirmed it had begun talks with the bank.
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Copyright The Financial Times Ltd 2011

>Sovereign Wealth Funds to reach over $5.5 trillion by the end of 2012


SWFs to reach over $5.5 trillion by the end of 2012

Opalesque Sovereign Wealth Funds Briefing

Sovereign Wealth Funds (SWFs) gradually regained their appetite for foreign investments in 2010 having cut−back on cross−border spending for much of 2009. Assets under management of SWFs increased 11% in 2010 to $4.2 trillion. There was a further $6.8 trillion held in other sovereign investment vehicles, such as pension reserve funds, development funds and state−owned corporations’ funds and also $7.7 trillion in other official foreign exchange reserves.

TheCityUK expects assets of SWFs to reach over $5.5 trillion by the end of 2012. The UK and London in particular is an important centre in the SWFs market as a clearing house and location from where some of these funds are managed………………………………………Full Article: Source
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