The MasterFeeds: February 2011

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February 19, 2011

Emergency ECB lending remains elevated

Emergency ECB lending remains elevated

By David Oakley in London and Ralph Atkins in Frankfurt

Published: February 17 2011 20:06 | Last updated: February 18 2011 09:33

Demand for emergency loans from the European Central Bank has stayed at unusually high levels for a second day in a row.

Figures on Friday showed that borrowing through the ECB’s marginal lending facility, which charges penal interest rates and tends to be used by banks in difficulty, rose to €16bn on Thursday.


Eurozone banks the previous day borrowed €15.8bn through the facility, which charges a rate of 1.75 per cent, three-quarters of a percentage point above ECB base rates, raising suspicions a “fat finger” trading error might be to blame.

Borrowing was €1.2bn the previous day and the daily average this year has been just €100m a day.

Thursday’s demand for emergency ECB loans was the highest since June 2009. It matched levels consistently seen about the time of Lehman’s failure, when banks were struggling to finance themselves. Then, lending markets seized up because banks, worried about counter-party risk, were refusing to lend to each other.

Don Smith, economist at Icap, said: “This is an extremely unusual event and at face value should trigger alarm in the market, but there is absolutely no sense of panic, which suggests that this is probably a dealer error – maybe a miscalculation or a ‘fat finger’ on a keyboard.”

Traders can make mistakes in transactions by failing to type in a decimal point or typing in an extra zero. The latest figures showing a second successive day of elevated borrowing could still be due to a trading error were the original borrowing rolled over.

Laurent Fransolet, analyst at Barclays Capital, suggested an alternative explanation: a bank that had become heavily dependent on ECB loans deliberately switched to the central bank’s marginal lending facility rather than using its regular offers of liquidity. Such a move could have been engineered by the ECB in order to “clean” the system, he said.

That would allow it to take a further step next month towards unwinding the extraordinary measures in place to help banks since the collapse of Lehman.

A bank could alternatively have miscalculated the amount of cash it would normally borrow at ECB open market operations.

The eurozone banking system has been returning to normal since the peak of the debt crisis last year, with banks able to borrow in the private interbank lending markets. Many no longer need to rely on ECB funding.

Overnight market lending rates, which plunged because of the huge emergency liquidity pumped into the financial system by the ECB, have now risen back to trade close to the central bank’s refinancing rate of 1 per cent.

The ECB declined to comment, in line with its policy of not giving any details about the lending facility.

Copyright The Financial Times Limited 2011.

FT.com / Capital Markets - Emergency ECB lending remains elevated

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-- The MasterFeeds

February 18, 2011

Financial Times: Bernanke says foreign investors fuelled crisis

Seems like the USA is now also resorting to the age old game of blaming the foreigners for their problems....  

Bernanke says foreign investors fuelled crisis
February 18 2011 1:25 PM GMT
 
--
By Robin Harding in Washington
--
Foreign investors' hunger for safe US assets helped to cause the 2007-2009 crisis by encouraging banks to turn risky mortgages into AAA-rated bonds, US Federal Reserve chairman Ben Benanke argued in Pari

Read the full article at: http://www.ft.com/cms/s/0/eea1957c-3b5e-11e0-9970-00144feabdc0.html?ftcamp=rss



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February 16, 2011

COMEX Default Or Hunt Brothers Redux? COMEX Silver Inventories Drop To 4 Year Low

COMEX Default Or Hunt Brothers Redux? COMEX Silver Inventories Drop To 4 Year Low
zero hedge

The small size of the physical silver market is seen in the fact that at $30 per ounce, the COMEX silver inventories are only worth some $3 billion. The US government is now paying some $4 billion a day merely on the interest charges for the national debt. It is also the same value as Twitter's new venture round of financing or Ford's debt pay down in the first quarter.


From GoldCore
Silver Bullion COMEX Stocks at 4-Year Low as Backwardation Deepens
Gold and silver are higher after last week's 1% and 3.5% gains in dollars. Silver is particularly strong again this morning and the euro has come under pressure as bonds in Ireland, Spain, Portugal and Greece continue to rise. While Asian equity markets were higher, European indices have given up early gains.
GoldCore
Silver's backwardation has deepened with spot silver at $30.16/oz, March 2011 contract at $30.13/oz and April's at $30.00/oz. While spot silver has risen nearly 1% so far today, the July 2012 futures contract was down 0.187% to $29.81/oz.

The gradual drain of COMEX silver inventories seen in recent months continues and COMEX silver inventories are at 4 year lows. Total dealer inventory is now 42.16 million ounces and total customer inventory is now at 60.68 million ounces, giving a combined total of 102.847 million ounces.

The small size of the physical silver market is seen in the fact that at $30 per ounce, the COMEX silver inventories are only worth some $3 billion. The US government is now paying some $4 billion a day merely on the interest charges for the national debt. It is also the same value as Twitter's new venture round of financing or Ford's debt pay down in the first quarter.

Comex Silver Inventory Data GoldCore

Comex Silver Inventory Data

Talk of a default on the COMEX is premature but the scale of current investment demand and industrial demand, especially from China, is such that it is important to monitor COMEX warehouse stocks.

The Hunt Brothers were one of a few dozen billionaires in the world in 1979 when they attempted to corner the market. Today there are thousands of billionaires in the world, any number of whom could again corner the silver market. Also, today unlike in the 1970s, there are sovereign wealth funds and hundreds of hedge funds with access to billions in capital.

The possibility of an attempted cornering of the silver market through buying and taking delivery of physical bullion remains real and would likely lead to a massive short squeeze which could see silver surge as it did in the 1970s.

NEWS:
(Financial Times) Gold ETF outflows and shifts in investor sentiment
Large outflows from precious metals exchange traded funds since the start of the year have left some analysts questioning if investor sentiment towards gold and silver could be shifting.

"Heavy redemptions from the gold and silver ETFs in early 2011 may be a sign of things to come," said Daniel Major, precious metals analyst at the Royal Bank of Scotland.

A decline in safe haven buying interest for gold and the prospects for interest rates returning to more normal levels in the US and Europe could mean that "positive sentiment towards [gold and silver] ETFs may be fading", according to Mr Major.

He added that if ETF inflows were to dry up or reverse, then it would be difficult for gold and silver prices to make further gains and the silver market would be "particularly vulnerable to a price correction".

Mr Major said he did not expect "large scale selling" but he estimated that the value of holdings in all precious metals ETFs has dropped almost $10bn so far this year with withdrawals mainly coming from the gold and silver products.

Other analysts acknowledge that ETF outflows have weighed on sentiment but say that the fundamentals supporting the gold price remain intact.

Suki Cooper, precious metals analyst at Barclays Capital said that the gold market was facing "short-term headwinds".

However, Ms Cooper also said that longer-term investment demand remains intact, given low interest rates, concerns about currency debasement, inflationary risks and rising geopolitical tensions as demonstrated by the situation in Egypt.

According to Barclays, holdings in gold ETFs ended 2010 at $98bn, a record, even though last year's inflows at 330 tonnes were down by almost half compared with 614 tonnes in 2009.Total gold ETF holdings were 2,142 tonnes at the end of 2010, slightly below the all-time high of 2,155 tonnes reached in the middle of December.

The latest available data suggests total gold ETF holdings have fallen to around 2,166 tonnes after a record monthly outflow in January.

With the gold price down around 4 per cent so far this year, the value of gold ETF holdings has retreated to around $90.4bn.

Michael Lewis, commodity strategist at Deutsche Bank said that the rally in gold prices has gradually run out of steam over the past five months due to concerns about a turn in the global interest rate cycle.

But Mr Lewis also said these concerns were overdone and that ongoing weakness in the US dollar and further diversification by central banks should sustain a positive outlook for the gold market.

Edel Tully, precious metals analyst at UBS, noted that outflows from gold ETFs were "relatively modest" so far in February, in contrast to the heavy selling seen in January.

"This suggests to us that the bulk of the ETF holders who wanted to exit gold have already done so," said Dr Tully.

She also warned against assuming that outflows from gold ETFs represented "absolute selling" as there was evidence to suggest that some institutional investors had been switching their exposure from ETFs into "allocated" gold (numbered bars held in bank vaults in a separate allocated account).

"The picture painted by recent persistent ETF outflows is not wholly accurate," cautioned Dr Tully.

(Bloomberg) -- Investors Boost Bullish Gold Bets as Egypt Turmoil Fuels Demand
Hedge funds are piling back into New York gold futures and options as turmoil in Egypt sent bullish bets on the metal to the highest since April 2010, government data show. Holdings in silver also increased.

Managed-money funds held net-long positions, or wagers on rising prices, totaling 145,846 contracts on the Comex as of Feb. 2, U.S. Commodity Futures Trading Commission data showed on Feb. 11. The holdings jumped 17 percent, after five straight weeks of declines.

Gold rallied 0.8 last week, the biggest price gain since December, as protests in Egypt forced President Hosni Mubarak to flee the country after 30 years in power. In January, the metal dropped 6.1 percent as an improving world economy eroded gold's appeal as a haven investment. Prices have rallied for 10 straight years, touching a record $1,432.50 an ounce on Dec. 7.

"You're seeing a renewed interest in gold from speculative money who put the brakes on the metal earlier this year," said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. "There's turmoil in Egypt, and inflation is heating up. Investment advisers and money managers are ready to put their money back to work. People are more comfortable jumping back into gold after a correction."

Gold futures for April delivery settled on Feb. 11 at $1,360.40, after rallying to a three-week high of $1,369.70 during the session.

Investments in exchange-traded products backed by gold fell to 2,019.4 metric tons as of last week, down 0.6 percent since January, when holdings plunged 3.1 percent, the biggest decline since April 2008, data compiled by Bloomberg show. ETPs trade on exchanges, with each share representing metal held in a vault. They accounted for 21 percent of investment demand last year, according to GFMS Ltd., a London-based research firm.

Silver Holdings
Bullish silver holdings by managed-money funds totaled 29,742 contracts, up 27 percent from the previous week and the highest total since November, CFTC data show. Silver settled Feb. 11 at $29.995 an ounce on the Comex, capping three straight weeks of gains.

This year, silver rose to $31.275 on Jan. 3, the highest in 30 years, before dropping as low as $26.30 on Jan. 28.

"We're more bullish on silver than gold because of its industrial component," said Barry James, the president of James Investment Research Inc. in Xenia, Ohio, which manages about $2.5 billion.

"After silver's dipsy doodle, it's creeped right back to where it started the year," said James, who has reduced the fund's holdings of silver and gold to about 2.5 percent from 7.5 percent in the fourth quarter. "We're more neutral than bullish on gold and don't expect it to pick up steam and race to a new record. The dollar will probably recover and show some strength."

Managed-money positions include hedge funds, commodity- trading advisers and commodity pools. Analysts and investors follow changes in speculator positions because such transactions may reflect an expectation of a shift in prices.

(Bloomberg) -- Gold Stalls in 'Tug of War' Moving Average: Technical Analysis
Gold, which has rebounded this month from the worst January since 1997, is stalling near a key moving-average, signaling a "tug of war," said Matthew Zeman, a trader at LaSalle Futures Group.

April gold futures have closed near the exponential 50-day moving average for four straight days as a move below or above this level may signal the metal's next direction, Zeman said by telephone from Chicago. The average is near $1,361 an ounce.

If the commodity can "breach" the level by closing higher, it can climb above the record $1,432.50 reached on Dec. 7, Zeman said. If prices don't rally above the resistance, they will likely fall to the 200-day moving average near $1,291, he said.

"Technical traders will initiate short positions below this level, and gold can't stage a rally until it vaults above this level," said Zeman. "Gold is staging a tug of war."

The last time gold posted consecutive closes near the average was in early January. After falling below the level, the metal tumbled 6.1 percent that month, the worst start to a year since 1997. Prices have rebounded as unrest in Egypt spurred investors to buy gold, historically used as a hedge against geopolitical risk.

On Feb. 11, prices erased early gains after Hosni Mubarak stepped down as president of Egypt and handed power to the military, bowing to the demands tens of thousands of protesters who have occupied central Cairo.

Gold futures for April delivery dropped $2.10, or 0.2 percent, to $1,360.40 on Feb. 11. The metal was still up for a third week, gaining 0.8 percent.

Economic Outlook
Bullion has dropped 5 percent since touching the all-time high in December, partly as improving U.S. economic data eroded demand for the precious metal as an alternative to equities.

"Gold is getting a lot of competition from other products," Zeman said. "Equities are at multiyear highs, and interest rates and the dollar continue to rise."

The metal jumped 30 percent in 2010, a 10th straight annual gain, as escalating European and U.S. debt boosted haven demand. The decade-long surge attracted fund managers from John Paulson to George Soros, and is now spurring central banks to add to their reserves for the first time in a generation.

Prices have also been able to stay above the 150-day moving average, near $1,315, even after the January slump, a signal that the decline was a "a healthy break," not the start of a bear market, David Hightower, the president of the Hightower Report, said last month.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index. The exponential moving average is a technical indicator that displays the average value of a security over a specified period of time, giving more weight to recent data.

(Bloomberg) -- Gold Investment Demand in South Korea May Climb, Hyundai Says
Investment demand for gold in South Korea may advance as investor awareness increases and the price climbs to a record, according to the manager of the nation's first gold-backed exchange traded fund, or ETF.

Investors "want it as a store of value with governments in advanced countries still having fiscal-debt problems," said Cha Jong Do, chief fund manager of the alternative investment team at Hyundai Investments Co. The Hyundai Hit Gold ETF, which listed in November 2009, is worth $5.3 million.

Bullion soared 30 percent in 2010, advancing for a 10th year, as investors sought a haven from the European sovereign- debt crisis and weakening currencies. Lion Fund Management Co. said last month it raised $483 million for China's first gold fund to be invested in overseas exchange-traded products.

"South Korean demand for gold-related investment products will gain steadily, and we expect gold ETFs to become a major investment product," Cha said in a Feb. 11 interview. Gold may advance to $1,600 an ounce this year, Cha said.

Gold for immediate delivery was little changed at $1,357.63 an ounce at 10:45 a.m. in Seoul. The price, which touched a record $1,431.25 an ounce on Dec. 7, has dropped more than 4 percent this year amid signs of a global economic recovery.

Exchange-traded funds allow investors to hold assets such as precious metals without taking physical delivery and they trade like stocks on exchanges. Holdings in the 10 gold ETFs tracked by Bloomberg have dropped 3.7 percent this year.

(Forbes) -- Chinese Demand For Gold Surges To Around 25% Global Production
It's hard to believe that ordinary Chinese citizens are responsible for an increase in gold imports to China– some 5 times larger than in the recent past. But, that is what the Financial Times of London reported this past week.

For one thing China is already the globe's largest producer. So, it has its own domestic supply of gold. Also, it suggests that possibly the Chinese are utilizing far greater amounts of their savings to purchase gold, rather than increase domestic consumption. Or that official figures of Chinese wealth are being under-stated.

Gold prices have been in a consolidation phase, trading between $1325 an ounce and $1375 an ounce for the past few months, as the dollar has been somewhat stronger in reaction to improving statistics on the US economy.

Another positive for gold is last week's recommendation from the IMF that $2 trillion in the form of a new international currency be created out of a weighted average of several currencies to begin the replacement of the dollar as the globe's chief reserve currency.

Gold experts point out that the recent weakness in gold has hit the price of the small mining company shares worse than the majors as speculation in gold has quieted down. The speculative interests in gold futures on the Comex has been substantially reduced. And net redemptions in the ETF GLD, has reduced its gold holdings by $2 billion or almost 4%.

So, you might say that the Americans are slightly retreating from gold as the Chinese holdings show record increases.

(FT Money) -- Silver set for gains
I suggested on October 23 – when silver was trading at around $23.50 – that $31.75 was one obvious place for its next sell-off to begin, with December 22 a likely date for turns. The semi-precious metal peaked at $31.28 on January 3, within seven trading sessions of my target date.

While I would have preferred its subsequent sell-off to have gone deeper, I retain my view that silver is in for substantial gains. I reiterate my targets of $39.62 and perhaps $45.69.

View article...

February 15, 2011

Bolivarian Arbitrage The Devil’s Excrement

 Bolivarian Arbitrage The Devil's Excrement



I- The Question

I have been getting some emails asking about why it is that the PDVSA bond issued last week, the so called PDVSA 2022, has a price that is so much below the identical Global 2022 Venezuela bond issued by the Republic last summer.

II.-Bonds in general

But to understand why this is relevant, let me start at the beginning: Typically, when a country or a company issues a bond, it has a price and a yield to maturity which depends on the perceived "risk" associated with the issuer. Such a bond is simply a promise that I will pay the annual payments, the coupon, and at maturity, the day the bond ends, you will get 100% of the nominal or face value of the bond.

III.- Venezuela's bonds and risk

Venezuela currently is perceived as being high risk, in fact, very high risk. There are two reasons for that, one is simply political, the feeling that one day Hugo may wake up and decide not to pay the country's debt. The second one is that Venezuela has been issuing more and more debt and at some point this can't go on, the country has to pay at maturity, as well as the increasing annual or coupon payments to the bond holders, which are already near US$ 5 billion per year.

As this risk has increased over the last few years, this coupon has gotten higher, meaning that the country or PDVSA has to pay more to convince someone to buy your bond. As an example, in 2009, PDVSA issued bonds maturing in 2014,2015 and 2016 with coupons around 5%. That means that if you hold $100,000 of the bond PDVSA has to pay you $5,000 per year and then at maturity give you back your money.

IV.- How Venezuela issues bonds

This is where things get complicated. Because of exchange controls, these bonds are not issued internationally, where they would trade very close to each other, but instead are sold to Venezuelan individuals or companies for Bs. That is, you pay so many Bolivars for each dollar face value of the bond at Bs. 4.3 per US$, but you know based of the coupon, that the bond will not trade at 100%, but at a lower value.

Why?

Because Venezuela would have to pay coupons of 14-16% for the bond to trade near 100% if issued in US$ directly. Instead, what the Government or PDVSA do, is to set a lower coupon, knowing that the bond will trade below 100%. Thus, if you are a Venezuelan and you pay say Bs. 4,300 per $1,000 of a bond that should trade around 70%, you buy it, sell the bond for 70% of its face value (You get $700) and then you are simply buying dollars at Bs. (4,300/700) or Bs. 6.14 per US$.

Since exchange controls are so strict now, people love these bond issues, because other than what the foreign exchange control office sells you at Bs. 4.3, there is no way for an individual to buy dollars as it is completely illegal to do so since last May. The same applies to companies. If the Government does not give them dollars for imports, they have to either use their own money or simply stop importing, it is illegal to buy foreign currency other than from the Government.

V.- The Venezuela Global 2022 bond

Last summer, Venezuela issued a bond maturing in 2022 (It actually matures in three parts, one third in each of 2020, 2021 and 2022) with a coupon of 12.75%. This is a very high coupon, very few companies or countries in the world issue at such high coupons. Even worse, these bonds trade at a discount in order to equilibrate with what investors expect from Venezuela. Last week, for example, this Global 2022 bond, as it is called, was trading at 88% of its face value just before PDVSA announced its bond. At that price it was yielding around 15.3%. The difference between coupon and yield is that coupon is what you get paid every year over the face value, yield to maturity is what your annual return will be if you keep the bond until it matures.

VI.- The PDVSA 2022 bond

And here is where the Bolivarian arbitrage and the topic of this post begins. You see, this week PDVSA announced an issue of a bond also maturing in 2022, also having a coupon of 12.75% and also having maturity in three parts in 2020,2021, 2022. That means the two bonds are identical. Given that PDVSA and Venezuela are so inter twinned, you would think they should have very similar prices and very similar yields. Right? Well, yes and no, because of all of the artificialities in the Venezuelan economy due to the controls, at the beginning of the trading of a bonds this does not happen. In time they will be very close, but it will take time.

In fact, last Thursday when the PDVSA 2022 began trading, it was being sold at 74% of its face value, while the Global 2022, essentially the same risk, same yield, same coupon, was trading at 86.4%, a full 12.4 points above the new PDVSA 2022 issue. Illogical. right?

VII.- The Bolivarian Arbitrage

You would think these two prices would become the same immediately, but they don't. This is the Bolivarian Arbitrage, the subject of this post and the question I have been getting from readers: Why are they different, why doesn't the gap close immediately? How can it make sense for Venezuela to be yielding 15.7% (same coupon, higher price of 86.4%), while an identical bond from PDVSA yields almost 19% (same coupon, lower price of 74%)? Aren't markets "efficient"?

The answer is that this exists because of the dynamics of the bond sales by the Government and the banks. Eventually, the difference will close, but it will take time. Here is why:

Companies don't want to buy the bonds, they want to get the dollars when they get the bonds and sell them. So, they go to a local bank and say: I will place an order with you, of say US$ 50 million, if you can guarantee a price for each dollar such that no matter what amount I get, the price will not change.

For the bank this is not easy. The client could be assigned zero of the bonds or it could be assigned the 50 million, the rules are never clear and vary from bond to bond. So, suppose that the bank expects the new bond to have a fair value of 82%, that means that each dollar costs (Bs. 4.3/0.82)=Bs. 5.24, but the company wants a guaranteed price, so you say I will pay you 70% for the bond, no matter how much you are assigned. This means, for the company, that the dollars will cost Bs. 6.14. This is a great deal in a country where there are no dollars to be had, so if your objective is to get dollars cheap, you are not very sensitive to the price, between not having access to any dollars or paying Bs 6.14 per US$, it is still a bargain. In fact, I bet most companies would pay even higher values, if they could get all they wanted.

VII.-Why the Government wants to sell cheap dollars

And here is another distortion. The Government knows that people would pay more, but it does not want to sell the dollars at a more expensive price (offering a lower coupon) because it wants to keep inflation down. Thus, it prefers to give away the dollars cheap, than to have the political risk of higher inflation. (Although in the end it is not as important for inflation as the Government thinks, it is mostly financing capital flight)

VII.- How local banks affect the international markets

But now, the bank has a problem. If six customers show up, each asking for a US$ 50 million guarantee of purchase, then the bank has undertaken US$ 300 million of risk, which could be dangerous. So, the bank measures how much risk it can take and starts selling these bonds in the international markets at say 74%, like the first day of the PDVSA 2022. It guarantees it will make a four point profit and lowers the size of its risk.

What is the risk? Well, the bank could have the opposite problem, that all customers are given nothing and then it has to go buy the bonds that it promised to deliver. Or that prices will go down because oil goes down or too many bonds hitting the market.

The problem is that these are huge issues for the markets, US$ 3 billion. To give you an idea, two weeks ago Petrobras issued the largest corporate bond in Brazilian history, a US$ 6 billion issue. PDVSA has issued US$ 9.15 billionsince last November! Thus, there is an over supply of PDVSA bonds and when the bank tries to sell US$ 100 million, there are only buyers at a low price, if there is no bargain, there are no big buyers.In time, prices will go up as the bonds leaving Venezuela are absorbed by the international markets.

This is the Bolivarian Arbitrage, another artifact of the distortions and complicated schemes the Government has built in around the exchange controls and the large and frequent issuance of bonds. These type of arbitrage has allowed many people in the past few years to make a lot of money, it was just not as obvious to the average person because the bonds were never identical like this time.

VIII.- Making money with the Bolivarian Arbitrage

Let me give you an example. Suppose you had a Venezuela 2010 bond in 2009 which you bought at 70-75% in the middle of the world financial crisis. In August of 2009, that bond was back up at 94% when PDVSA announced a Petrobono 2011 with no coupon. This 2011 bond came out at around 64%, you could have sold the 2010 and bought the Petrobono 2011. Then, PDVSA issued the PDVSA 2014, which was sold at around 56% when the Petrobono was already at 82%. Then, you could have sold the PDVSA 2014 at around 63% to buy the Global 2022 at 76%. In that sequence, ignoring interest, you would have made over 100% profit in less than two years and now you are ready to make some more money again, switching to the PDVSA 2022.

IX.- The risk of playing this game.

The risk, obviously is that one day you will not get paid if Venezuela decides not to pay and the bond will drop to around 30-35% of its face value, the so called recovery value. (That is why some people buy the long dated bond, which trade around 45%) You will lose a lot of money, in fact, you will lose all your gains. Of course, everyone assumes they are so smart that if that ever happens or comes close to happening, they will have no Venezuelan bonds in their portfolio by then. They did not expect Russia to default in the 90′s or Argentina in the new century. They both did.

Of course, that is what markets are about. Some think oil is going to soar. Others that the Government will change. Many that Venezuela can do this for a few years without defaulting. Everyone has a different opinion on it.

In the meantime, they will continue riding the Bolivarian Arbitrage.

X.- Why this is so crazy.

But this whole thing is absolutely crazy and it should not be this way. Venezuela's risk premium is high because of the constant supply of bonds to the market and the non-transparent way in which things are done. If the Government set up a road map every year telling markets exactly how much it will issue and in roughly which part of the year, the risk premium would go down, the debt would not be as costly. Instead, after telling investors for weeks there would be no issuance in the first few months of the year, PDVSA surprised them with this bond. A road show abroad by the Government once in a while to explain its finances, would also not hurt either.

Additionally, there is no justification for the overvaluation of the currency in these sales. Venezuela has high inflation because monetary liquidity keeps going up and up while productivity goes down and down. It is the classic inflationary set up. But instead of attacking the real causes of inflation, the Government decides to sell these dollars cheap to those that have access to them. It is in the end a subsidy to the well to do and to foreign investors, who are as happy as can be investing in yields that are impossible to find anywhere else in the world.

But it is a crazy scam that will one day come back and get us. It is the Bolivarian Arbitrage.


http://devilsexcrement.com/









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February 14, 2011

latest metals news

n      Copper imports by China rebounded 5.7% (364,240t) in January from the previous month as fabricators increased stockpiles ahead of a seasonal ramp up in production after the Lunar New Year break.

 

n      The LME and Singapore Exchange will begin trading copper, zinc and aluminum futures on the Singapore bourse tomorrow.

 

n      United Co Rusal jumped to a record in Hong Kong trading afterNorilsk Nickel increased its offer to buy back shares held by the aluminum producer to $12.8bn, prompting speculation the bid will rise further.

 

n      Korea Resources and Daewoo International, the trading company controlled by Posco, made an initial bid for Whitehaven Coal, an Australian producer with a market value of A$3.6bn ($3.6bn).

 

 

February 11, 2011

Have You Seen HOSNI MUBARAK'S Facebook Page?

Have You Seen HOSNI MUBARAK'S Facebook Page?

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-- The MasterFeeds

World Economic Forum : Global Risks 2011

World Economic Forum : Global Risks 2011

Assessment of the world's perceived risks by the World Economic Forum

World Economic Forum : Global Risks 2011

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-- The MasterFeeds

Another Puzzling Bond Issue, this time by PDVSA « The Devil’s Excrement

Economic mismanagement at its best.... and they say they're socialists....!!!! Looks more like greedy "neo-liberal capitalists"!!!


Another Puzzling Bond Issue, this time by PDVSA « The Devil’s Excrement:

Once again, Venezuela, this time via its oil company PDVSA, gets ready to issue a bond which puzzles markets. As investors were asking for more transparency, more order and fewer surprises in the country’s issuance, PDVSA did exactly the opposite, announcing the sale of a US$ 3 billion issue to be sold via the banking system and with identical characteristics to the Venezuela Global 2022 bond issued by the Republic last August.

There are many puzzles:

-Why make it identical to the existing sovereign bond?

-Why pay a coupon of 12.75% when it would have sold equally well at a lower coupon? In fact, the Global 2022 was issued at a time last August that the yield curve was much higher than it is today.

-Why issue something so unexpected, after sending different signals to investors that are asking for more clarity?



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-- The MasterFeeds

February 9, 2011

TSX-LSE Merger

TSX-LSE  Merger

The owners of the London and Toronto stock exchanges have agreed a "merger of equals". In a statement this morning, the London Stock Exchange Group plc (LSE) and TMX Group Inc announced an agreement to combine Europe's and Canada's leading diversified exchange groups in an all-share merger.

The enlarged group would be the largest in the world in terms of the number of listings, and the leading listings venue for natural resources, mining and energy companies. The two companies also claim to be the market leader in high-performance, cost-effective cash and derivatives trading technology.

The deal has been unanimously recommended by the boards of both LSE and TMX, and markets responded positively by marking the two companies' share prices higher.

The combined transatlantic group (jointly headquartered in London and Toronto) will have over 6,700 listed companies, with an aggregate market capitalisation of approximately £3,700 billion (C$5,800 billion).

February 3, 2011

In Advance Of The Egyptian Bank Run...

In Advance Of The Egyptian Bank Run...
Posted on: Thursday, February 03, 2011 16:38
Author: Tyler Durden zero hedge - on a long enough timeline, the survival rate for everyone drops to zero

 

According to Al Jazeera, the Egyptian Central Bank has just imposed a withdrawal limit of $10,000 on all banks in order to prevent a systemic bank run that will promptly wipe out what is left of the financial system. Look for this number to be cut to $100 in the first several minutes after banks reopen (whenever that actually happens). As for all that central bank currency "gold backing", somehow we have a feeling that Egypt's 75.6 tonnes in gold is about to be drastically adjusted. Also, it is not too late to reevaluate that long EGPT thesis.

More as we get it.


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February 2, 2011

Cohen says insider probe won’t hurt SAC investors Hedge Funds - MarketWatch

SAN FRANCISCO (MarketWatch) — Steven A. Cohen, head of SAC Capital Advisors, told investors they won’t suffer losses or incur costs from a government investigation into potential insider trading in the hedge-fund industry, according to a year-end letter obtained by MarketWatch on Tuesday.

Cohen also described the new trading teams that are joining SAC and predicted a “reasonable” year for the stock market in 2011, after calling 2010 “strange,” according to the letter, dated Jan. 31.

SAC, one of the largest hedge-fund firms in the world, told investors in November that it was subpoenaed by federal authorities amid a widening insider-trading investigation. Read about SAC’s involvement in government probe.

In its Jan. 31 letter to investors, Cohen said SAC’s management company will bear any costs related to the investigation.

“Accordingly, we are confident there will be no financial impact to our investors,” he wrote. “While this investigation plays out, I and the other portfolio managers remain focused on managing the assets entrusted to us. We are confident that our ability — and my ability — to do so will not be affected.”

Cohen stressed that SAC has a “stable” capital base, partly because a lot of the money the firm oversees is its own internal capital. Read about why SAC may feel little redemption pressure.

Market outlook

Cohen also said the global economic environment plays to the firm’s strengths. “Despite significant issues in the global economy, there are indications that the stock market may be poised to have a reasonable year,” he wrote.


Reuters

Steven A. Cohen
The continuation of Bush-era tax cuts and the Federal Reserve’s second round of quantitative easing, combined with the extra fiscal stimulus from reductions in Social Security taxes, should help economic growth accelerate and unemployment begin to trend down, he explained.

“With that backdrop, it is likely that stock volatility and stock/factor correlation will stay reasonably low, and this should create a reasonably attractive environment for stock pickers,” he added. Read about hedge-fund hopes for lower correlation.

This may be a contrast to 2010, which the hedge-fund manager described as “strange.”

When the European sovereign-debt crisis erupted in the spring, volatility spiked and correlations reached record highs, according to Cohen. That makes it difficult for stock pickers to add value.

By the middle of the summer, government efforts to control the crisis and stimulate the economy made investors less concerned and correlation and volatility dropped, helping stock pickers outperform, he wrote.

SAC’s main hedge funds returned more than 14% in 2010. After losing more than 2% in the second quarter, they gained roughly 6% and more than 5% in the third and fourth quarters, according to the letter to investors.

Read the rest of he article here:

Cohen says insider probe won’t hurt SAC investors Hedge Funds - MarketWatch

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