The MasterFeeds: May 2012

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May 30, 2012

Will the #Euro Misery Give Rise to Another Soros? — CNBC

Will the Euro Misery Give Rise to Another Soros?

Two decades ago, George Soros rose to fame and fortune on his now-historic trade in which he took on the Bank of England and shrewdly wagered on a devaluation of the British pound.

But it's unlikely the current European monetary crisis and worries about Greece's potential exit from the euro zone will give rise to an investing legend like Soros, who made $1 billion in 1992 by betting on a decline in the price of the pound.

Instead, there are a multitude of strategies to play Europe's troubles, and many different participants, hedge fund managers say.

"There is not room for one player to have such impact," said John Brynjolfsson, whose California-based Armored Wolf hedge fund has been betting against the euro for quite some time. "Financial markets are so much bigger today."

A spokesman for Soros, who last year converted his Soros Fund Management to a family office and stopped managing money for outside investors, could not be reached for comment.

The euro zone crisis has gone on for so long it is difficult for investors to pinpoint an entry and exit point for a trading strategy. Positions and hedges require constant adjustment, making it difficult to come up with a single big-winning trade.

"It's unlikely in Europe, because the way Europe works is incremental crisis, incremental recovery," London-based Robert Marquardt, founder of fund of hedge funds firm Signet, said.

Brynjolfsson and several other U.S. money managers who are trying to profit from Europe's misery say they expect the current crisis to produce a lot of winners.

So far this year, the euro [EUR=X  1.2539    -0.0027  (-0.21%)   ] is down 3.3 percent against the U.S. dollar.

Money managers say it's hard to swing for the fences the way Soros did because institutional investors are far more squeamish about having too much money riding on any single trade.

There is also heightened sensitivity from pensions and endowments about taking up an investment strategy that might spark political outrage from European leaders.

Another thing working against the rise of a new Soros is that trading the euro zone, or even the fallout from a Greek exit, is much more complicated than betting against a single currency.

Money managers are trading the euro zone crisis by trading currencies, wagering on the direction of bank stocks or using derivatives like credit default swaps to bet on potential corporate and bank failures.

Greenlight Capital's David Einhorn recently said he is bullish on gold [GCC1  Unavailable      ()   ] and gold miners, in part because of concern about the fallout from a euro zone meltdown.

Some managers are even going both short and long on different European sovereign debt [cnbc explains] , depending on their views of the financial stability of different countries.

Adam Fisher, manager of the $320 million Commonwealth Opportunity Capital hedge fund, noted that Soros faced a "single country, not 17 different countries, one decision maker, not 17."

Fisher's fund, which has more than 80 percent of its money invested in Europe, is taking a somewhat contrarian position by owning the European sovereign debt of Germany, the Netherlands, Italy and Spain.

Read the article Online here: http://www.cnbc.com/id/47589130



May 23, 2012

John Paulson's Detailed Case for his Favorite #Gold Stocks | ValueWalk #d

John Paulson’s Detailed Case for his Favorite Gold Stocks

Gold equity prices are currently trading at very depressed levels, with the sector now on a valuation not seen since the fall of Lehman. The gold mining companies, however, continue to grow their earnings with the higher gold price, and we believe that it is only a matter of time before the sector re-values.

John Paulson image
May 22, 2012
By


We have obtained John Paulson’s latest letter to investors. Paulson’s letters are great because he goes into great detail. For example,  a letter to investors dated February 2012, was 102 pages, the latest letter for Q1 is 44 pages, and mostly text, not legal jargon. Almost no other hedge fund managers write letters as long as Paulson’s.


Below is Paulson’s macro overview followed by his gold fund holdings:

Macro Overview
While the U.S. economy appears to be doing better than expected and equity markets appear moderately priced, significant risks exist. At the global level, the Euro crisis remains the biggest risk to global activity and global markets. While the ECB has stabilized European credit markets in the short term through the injection of massive liquidity, the ECB maneuvers do not address the fundamental flaw of the Eurozone, a monetary union without a fiscal and political union. An unraveling of the Euro would affect not only European markets but also all markets in which we operate. We are also monitoring other risks, such as rising tensions in the Middle East, the rise in oil prices, and a potential slowdown in China.
In the short term, risks remain with Greece, Portugal, France and Spain.

A Greek exit from the Eurozone remains a concern. Portugal also remains an
unresolved issue, which despite its government’s recent positive statements, is likely to need a second bailout program to avoid a default.

New risks would present themselves if a new French government took a
radically different approach to European policy. The benefits of the LTRO are starting to wear off as Spanish CDS spreads are at all-time highs. Spanish banking stocks are also falling due to concerns about both Spanish sovereign and private sector credit risk. In the intermediate term, Spain will likely require bailout assistance as its deficit remains high, its economy continues to shrink, its unemployment rate continues to rise, and its debt to GDP continues to climb. Spanish Five Year CDS Spreads Above Peak Levels of November 2011 and Spanish Banks Stocks Plummeting Due to Increasing Sovereign Exposure.

Gold Price
The first quarter of 2012 was characterized by continuing volatility in gold and gold equities. Gold started the year at US$1,564/oz, and had risen to US$1,738/oz. by the end of January, driven by news that gold imports into China in the final quarter of 2011 were extremely robust. The rally continued into February, and by February 28th the metal reached US$1,784/oz, a gain
of 14.1%. The following day, however, gold lost almost $90/oz. on the back of comments from Fed Chairman Bernanke suggesting that no further quantitative easing would be required. After starting out strongly, gold shed 2.3% in February and a further 1.7% in March but still posted a positive return of 6.7% for the quarter.

Gold Equities
Although gold prices rose, gold equities fell during the quarter. After rising along with the gold price through February 28, they fell at a more rapid pace for the rest of the quarter, with the gold mining index finishing down 3.7% for the quarter. In fact, the divergence of gold miner equity performance from the gold price has continued to widen since the fund was formed. Since the inception of Paulson Gold, the gold price is up 49%, the Gold Miners Index Market Vectors Etf Trust (NYSE:GDX) is flat and the Junior Gold Miners Index, Market Vectors Junior Gold Miners ETF (NYSE:GDXJ) is down 12%.

Gold equities have been lagging the price of gold since January 2010. After rising 13.5% in January, the gold fund dropped 4.8% in February and 13.5% in March, closing the quarter down 6.5%.

Outlook
Despite recent negative performance, we believe that the outlook for gold and gold equities remains positive. The improved performance of the U.S. economy is consistent with our view that the Fed’s massive stimulus program is beginning to take effect, and that the effects of quantitative easing will eventually result in higher levels of inflation. We believe this will
ultimately be very positive for gold, even though we are currently in a low-inflation environment. Gold equities are now at historically low valuation levels. An analysis of the trailing 12-month EV/EBITDA ratio for the NYSE ARCA GOLD BUGS INDEX (NYSE:HUI) shows that the gold equities
are trading at their lowest valuation level in ten years, on par with the low point in valuation that prevailed following the failure of Lehman Brothers.

Given the financial performance of the gold mining companies in the current gold price environment, we believe the equities are substantially undervalued and poised for a revaluation. During 2011 the gold producers delivered EPS growth of approximately 50%, compared to an average year-over-year increase in the gold price of 28.2%. In the first quarter of 2012 the gold price averaged 21.9% more than it did in 1Q2011, and we anticipate further growth in earnings and cash flows when the industry begins reporting its quarterly results. In our view, this is a compelling entry point.

Paulson Gold Fund Equities
The gold equities in the Paulson Gold Funds delivered mixed results in 1Q2012. Randgold Resources Ltd. (NYSE:GOLD) (LON:RRS), which was one of the best performing gold equities during 2011, sold off towards the end of March following news that a group of junior officers had staged an unexpected coup in the West African nation of Mali. This country accounts for approximately 45% of Randgold’s gold reserves and 65% of this year’s production. Recently, the leaders of the coup and the Economic Community of West African States (ECOWAS) have brokered a resolution providing for a quick return to democracy. Randgold’s operations were not materially affected by these events, and the company has reaffirmed its
2012 production guidance.
Centerra Gold Inc. (TSE:CG) also suffered a setback when it announced that its production for 2011 would be impacted by the unexpected movement of waste sitting on the south end of its current production pit. Due to this movement, the company will have to devote its fleet to advancing the removal of waste, and will therefore not be able to access high grade ore that was scheduled for production in the fourth quarter of 2012. The shares sold off sharply before recovering the majority of its losses, once the market recognized that this was a timing issue and production is expected to recover in 2013.
On the positive front, NovaGold Resources Inc. (NYSE:NG) (TSE:NG) shareholders approved the corporate restructuring that was announced in November of 2011. The company will be spinning out a new company called NovaCopper, which has as its sole asset the Ambler project in Alaska, an exciting copper exploration project. NovaGold will sell the Galore Creek copper project, focusing solely on its flagship Donlin Creek gold project in joint venture with Barrick Gold. The company has recently appointed a seasoned and highly regarded executive to lead the company. As a pure play gold company, we believe NovaGold will be attractive to investors and corporate buyers.
Detour Gold Corporation (TSE:DGC) continues to move forward with the development of the Detour Lake gold project. At the end of March, the project was 60% complete and is advancing at about 5% per month. Mining activities have commenced, allowing the company to build a stockpile of ore ahead of the completion of the processing plant. The main critical path item, the connection of the high tension power line, is now scheduled for early August, which should allow commissioning of the plant in the fourth quarter of 2012. When fully complete, Detour Lake will be Canada’s largest gold mine, and we believe that the shares have significant upside potential.

The shares of Osisko Mining Corp. (TSE:OSK) recovered during 1Q2012 as the market recognized that the modifications to the processing plant at the Canadian Malartic mine were being implemented. The first of two secondary crushers began commissioning in mid-March, and the second remains on schedule for delivery in June of this year. This should allow the company to meet its production guidance for 2012 of 600,000oz

Conclusion

Gold equity prices are currently trading at very depressed levels, with the sector now on a valuation not seen since the fall of Lehman. The gold mining companies, however, continue to grow their earnings with the higher gold price, and we believe that it is only a matter of time before the sector re-values. The Paulson Gold Funds are poised to benefit in such an environment.

John Paulson's Detailed Case for his Favorite Gold Stocks | ValueWalk

May 21, 2012

FT Alphaville » This is why #Grexit fears might be overdone

This is why Grexit fears might be overdone

We pointed out on Friday that a poll suggested Greeks were far from wanting out of the eurozone and would actually return to New Democracy in adequate numbers for a pro-bailout coalition to be formed. From Reuters:

The poll, the first conducted since talks to form a government collapsed and a new election was called for June 17, showed the conservative New Democracy party in first place, several points ahead of the radical leftist SYRIZA which has pledged to tear up the bailout.

EU leaders say that without the bailout, Greece would be headed for certain bankruptcy and ejection from the common currency, which would sow financial destruction across the continent. The prospect SYRIZA would win the election has sent the euro and markets across the continent plummeting this week.

The poll predicted New Democracy would win 26.1 percent of the vote compared to 23.7 percent for SYRIZA.

Crucially, it showed that along with the Socialist PASOK party, New Democracy would have enough seats to form a pro-bailout government, which it failed to win in an election on May 6, forcing a new vote and prompting a political crisis that has put the future of the euro in doubt.

Read the Rest Of the Post Online here:
FT Alphaville » This is why Grexit fears might be overdone

May 17, 2012

Norway’s Day Traders Take on the Algos FT CNBC.com

Norway’s Day Traders Take on the Algos

Financial Times | May 17, 2012 | 03:37 AM EDT

Sophisticated algorithmic trading systems have become the bane of an equity day trader’s life, reacting faster to news than any human can and spotting price irregularities across thousands of stocks at once.

Nearly 40 percent of all share orders in Europe are sent by algorithmic trading computers, up from just 20 percent five years ago, according to the Tab Group, a capital markets constancy. In the U.S. the figure is 37 percent.

Yet despite the prevalence of these supposedly smart machines, some traders are making a tidy profit getting the better of these systems, which can make costly mistakes if they are not set up correctly or if their trading patterns can be understood.

Send Emil Larsen, a Norwegian day trader, worked out in 2007 how the computer algorithm of Timber Hill, a unit of US-based Interactive Brokers, would respond to trades in certain illiquid stocks. The stocks would change price in a uniform way regardless of how much was bid.

He found that he could bump up the price with very small trades and then sell with much larger trades for a profit. He was not the only trader who worked out this flaw, which he called “painfully obvious.” But he still made $50,000 in a few months.

Charges of market manipulation were brought against him and another trader, Peddler Vibe, in a high-profile court case where the public came to look on the duo as heroic Robin Hood figures, beating financial houses at their own game.

The courts found them not guilty of market manipulation this month, concluding that they were making the market more efficient by exposing a flaw in the system.

Meanwhile Mr. Larsen – and others – continue to beat algorithms. A few months ago he says that UBS failed to set a bottom limit on one of its trading algorithms and he picked up some stock at a discount. He estimates he made $14,000 in a few minutes.

It is not just Mr. Larsen getting the better of financial institutions. Eivind Stolen, a Swedish day trader, says he made several thousand dollars in seven minutes last year after a Morgan Stanley client algorithm went “totally haywire” in Atlas Copco and SSAB stock.

He says the computer started buying at the offer price and selling at the bid, instead of the other way round, and hundreds of people across the world piled in to take advantage, making a small spread on every trade they bought and sold straight back. Morgan Stanley [ MS 13.41  -0.73 (-5.16%) ] was fined for this error on Wednesday.

“Every few weeks an algorithm is going wrong, and there is always someone making money from it,” says Kjell Jørgensen, associate professor at BI Norwegian Business School.

John Bates, chief technical officer at Progress Software, a US-based company that provides algorithmic trading software, says that every time there is a big failure of an algorithm because of a “fat finger” or programming error, behind the scenes there are always “some traders making a lot of money”.

He points to some notable recent failures where day traders and others in the market likely made a profit, including when Deutsche Bank’s [ DB 35.93  -1.15 (-3.10%) ] trading algorithms in Japan took out an $182 billion stock position by mistake in 2010.

Another was in 2011 when a possible “fat finger” nearly wiped out ten Focus Morningstar exchange traded funds that had just been launched on Nasdaq OMX [ NDAQ 23.15  -0.53 (-2.24%) ] and NYSE Euronext [ NYX 24.61  -0.51 (-2.03%) ].

Annika von Haartman, head of surveillance at the Nasdaq OMX Nordic stock exchanges, says that over the past two years they have seen more cases like this than ever before due to the rate at which new algorithms are emerging. “We deal with algo related issues on an everyday basis,” she says.

Policy makers in Brussels want to tighten up regulation of high-frequency trading after fears about the integrity of these trading systems were raised in the wake of the “flash crash” in 2010, when the Dow Jones Industrial Average swung hundreds of points in 20 minutes.

In the meantime, traders contacted by the Financial Times say that their technique for beating algorithms is the same as beating any other trader: endless screen watching. This gives them a sense of how certain stocks behave, allowing them to spot quickly when something goes wrong. Often they do not know it is an algorithm they have beaten until after the event.

In the day-to-day, they stress that algorithmic traders are an overwhelming negative for them, making trading more difficult. But this makes it all the more satisfying when they outwit one of the big financial institutions. “We feel like Robin Hood, or David beating Goliath,” says Mr. Larsen.

Read the article online here: News Headlines

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May 15, 2012

How To Make A 135% Annualized Return In 4 Months | ZeroHedge

How To Make A 135% Annualized Return In 4 Months

Tyler Durden's picture


Back on January 22, (Subordination 101), we advised readers that the one virtually sure way to make a killing in the bond market is to i) buy up a fulcrum Greek piece of debt, i.e., international/UK-law bond with strong covenant protection ahead of the country's restructuring, ii) refuse participation in the cramming down PSI, which was nothing but a GM-type exercise in covenant stripping, and iii) sit back and enjoy the money trickle in. Back than the €450 million bond of May 15, 2012 traded at ~75. Today, that same bond is about to generate a 31.26% cash on cash return, or 135% annualized, as it is Greece that has blinked, and according to the FT, has decided to make a full bond payment on this issue to avoid an out of control sovereign default, even though by doing so, it reduces its cash holdings by a third to just over €1 billion as discussed yesterday, and risks pushing both the PSI participants and its citizens into a murderous rage, as instead of complying with its mouthing off during and after the PSI, that not one bondholder would get a par repayment (nor apparently use the cash for public proceeds such as paying salaries), the one entity who ended up having all the leverage was those bondholders, who went against the grain, and held to their covenant rights. Just as we suggested. End result...
From the FT:
Greece is set to repay fully a €450m bond that matures on Tuesday after failing to reach a deal with holdout investors including private banks and a US-based hedge fund.

The expected move marks a significant twist in the restructuring of Greece’s debts. “It was considered imprudent to default on a bond issue at a moment of political instability, when the country’s membership of the euro is being questioned,” said an official involved in the transaction.

The bond was issued under UK law unlike the €177bn of Greek-law sovereign debt held by private sector creditors which was restructured in March with investors taking a 75 per cent loss on their holdings.
Greece has enough funds to cover the repayment after receiving a €4.2bn transfer last week under its second bailout agreement with international lenders, a senior banker said.

“It was a sensible decision to pay up … In this environment you don’t want another negative shock,” the banker said.
The same official said the decision to repay the bond in full “would not have any bearing on future decisions regarding other similar bonds.”
Read the article online here:
How To Make A 135% Annualized Return In 4 Months | ZeroHedge



May 11, 2012

JP Morgan's $2 bill loss: Drew Built 30-Year JPMorgan Career Embracing Risk - Bloomberg

Drew Built 30-Year JPMorgan Career Embracing Risk

JPMorgan Chase & Co. (JPM)’s Chief Investment Officer Ina R. Drew, head of the unit responsible for a $2 billion trading loss, built a 30-year career at the largest U.S. bank by embracing risk and avoiding the spotlight.

“With everything she does, she thinks in terms of trading,” said Stephen Murray, head of CCMP Capital Advisors LLC, created from a JPMorgan private-equity unit in 2006. “There are risk-lovers, there are risk-haters, and the best traders will take the risk as long as they get paid for it.”


Drew’s operation, which helps manage the bank’s risk, has been transformed under Chief Executive Officer Jamie Dimon to make bigger speculative bets with the firm’s own money, according to five former employees, Bloomberg News reported last month. Some bets were so big JPMorgan probably couldn’t unwind them without roiling markets, the former executives said.

The loss disclosed yesterday came after an “egregious” investment-office failure tied to credit derivatives, Dimon said in a conference call. “In hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored.”

Drew, 55, is one of two women who sit on the New York-based firm’s operating committee. Her office oversees about $360 billion, the difference between money from deposits and what the bank extends in loans. Dimon, 56, had pushed the unit to boost profit by buying higher-yielding assets, including structured credit, equities and derivatives, two former employees have said. The shift to riskier bets underscores how blurry the line can be between so-called proprietary trading and what banks say is hedging.

Chemical Bank

Drew has overseen both kinds at the firm for decades. She joined Chemical Banking Corp. in 1982 after graduating from Johns Hopkins University in Baltimore and receiving a master’s degree from Columbia University’s School of International Affairs, according to the bank.

When Chemical merged with Manufacturers Hanover Corp. in 1991, Drew was put in charge of managing U.S. interest-rate risks and given oversight of discretionary trading positions, according to a news release that year.

“Ina was all about risk-taking,” said Mark Schneiderman, a former human resources manager at Chemical. “She was scary- smart, she was very determined, she was very low-key compared to the crazies that you find on a trading floor -- but very, very determined.”

Petros Sabatacakis, a former chief risk officer for Citigroup Inc. and now a director of the National Bank of Greece SA, said he promoted her at Chemical.

“I don’t know what makes a good trader, but I could see the results,” he said in an interview.

Long-Term Capital

Chemical merged with Chase Manhattan Corp. in 1996. Drew’s work as head of Chase’s domestic treasury helped position the firm for the collapse of hedge fund Long-Term Capital Management LP two years later, according to an executive who worked with her on risk management and stress tests. The person asked for anonymity because he wasn’t authorized to speak. While Chase reported record earnings for the fourth quarter of 1998, Drew never sought publicity, the colleague said.

Drew, who was put in charge of JPMorgan’s chief investment office in February 2005, received $14 million from the bank last year, according to company filings. Dimon said yesterday that the portfolio she managed almost doubled in recent years.

“I read somewhere that we made it more aggressive,” he said yesterday. “I wouldn’t it call more aggressive, I would call it better.” Joseph Evangelisti, a spokesman for JPMorgan in New York, said Drew wouldn’t comment.

Corrective Action

John Farrell, a former human resources chief at JPMorgan, said Drew would tell heads of the firm’s investment-banking and trading businesses, “I don’t agree with that, and here’s what we should be doing,” Farrell recalled. “And what we end up doing was what Ina said.”

While the losses originated from the unit’s London team that reports to Drew in New York, more than one trader was responsible, according to an executive at the bank. The company is reevaluating the risk-monitoring team within Drew’s unit, according to the executive. Dimon said yesterday that “all appropriate corrective actions will be taken, as necessary.”

Read the whole story online here: Drew Built 30-Year JPMorgan Career Embracing Risk - Bloomberg

May 9, 2012

Why #France Has So Many 49-Employee Companies - Businessweek

The country has 2.4 times as many companies with 49 employees as with 50.

Why France Has So Many 49-Employee Companies

By and on May 03, 2012 
 
Here’s a curious fact about the French economy: The country has 2.4 times as many companies with 49 employees as with 50. What difference does one employee make? Plenty, according to the French labor code. Once a company has at least 50 employees inside France, management must create three worker councils, introduce profit sharing, and submit restructuring plans to the councils if the company decides to fire workers for economic reasons.

French businesspeople often skirt these restraints by creating new companies rather than expanding existing ones. “I can’t tell you how many times when I was Minister I’d meet an entrepreneur who would tell me about his companies,” Thierry Breton, chief executive officer of consulting firm Atos and Minister of Finance from 2005 to 2007, said at a Paris conference on April 4. “I’d ask, ‘Why companies?’ He’d say, ‘Oh, I have several so that I can keep [the workforce] under 50.’ We have to review our labor code.”

While polls show job creation and the economic crisis are the top issues for voters in the May 5 second-round vote for president, neither President Nicolas Sarkozy nor Socialist challenger François Hollande are focusing on Breton’s concern. Companies say the biggest obstacle to hiring is the 102-year-old Code du Travail, a 3,200-page rule book that dictates everything from job classifications to the ability to fire workers. Many of these rules kick in after a company’s French payroll creeps beyond 49.

Tired of delays in getting orders filled, Pierrick Haan, CEO of Dupont Medical (not to be confused with chemical company DuPont (DD)), decided last year to return production of some wheelchairs and medical equipment to France. The 150-year-old company, based in Frouard in eastern France, created 20 jobs making custom devices at a French plant—and will stop there. Faced with France’s stifling labor code, Haan probably will send any additional production of standard equipment to what he calls “Near France”—Tunisia, Bulgaria, or Romania. “The cost of labor isn’t the main problem, it’s the rigidities,” Haan says. “If you make a mistake in your hiring plans, you can’t correct it.”

There are now 2.9 million people out of work in France, almost 10 percent of the workforce and the most in 12 years. “For the 100 employees we have in France, we have 10 employee representatives, for whom we have to organize weekly meetings even when there is nothing to discuss,” Haan says. “Every time a social security contribution changes, which is frequently, we have to update software and send our HR people for training. We can’t fire anyone without exorbitant costs.”

The code sets hurdles for any company that seeks to shed jobs when it’s turning a profit. It also grants judges the authority to reverse staff cuts years after they’re initiated if companies don’t follow the rules. The courts even deem some violations of the code a criminal offense that could send executives to jail.

Software maker Viveo Group, an arm of Geneva-based Temenos Group, began the required talks with the workers’ council in February 2010 because it wanted to cut about a third of its 180-member staff, according to court records. Viveo offered employees a voluntary departure plan in June of that year as the council dragged its feet on evaluating the earlier proposal, court records show. The workers’ council then went to court to block the cuts. It won a ruling against the original plan in January 2011 on the grounds that Viveo was forecasting an 18 percent increase in sales, meaning its future didn’t depend on the layoffs. France’s highest appeals court is reviewing the decision and is expected to rule on May 3. “What holds back hiring in France is the lack of clarity on how to legally cut jobs,” says Déborah David, a labor lawyer at Jeantet Associés in Paris who has followed the case. If the decision is upheld, Viveo will have to take back the workers and hand over two and a half years in back pay, she says.

When courts don’t intervene, politicians often do. After the owners of the Lejaby lingerie factory in Yssingeaux won court approval in January to fire about half their 450 employees in France and shift production to Tunisia, the company found itself thrust into the center of this year’s campaign. Sent by Hollande to visit the plant, Socialist legislator Arnaud Montebourg told the workers they “symbolized the situation of the country.” He promised his party would work to bring back jobs that have gone abroad over the past decade if it won the election. Sarkozy vowed to save the plant and took credit for orchestrating its takeover by LVMH Möet Hennessy Louis Vuitton (MC), which is converting it to leather goods production.

Hollande makes no mention of labor regulations in his platform, which seeks to generate jobs through tax incentives and government hiring, such as creating 60,000 new teacher posts. He said on April 25 that if elected he would act to counter “a parade of firings” expected after the election: Companies may be holding back job cuts until then to avoid drawing political heat.

Worker groups say the code itself isn’t the issue. “If the code is complicated, it’s because our society is complicated,” says Bernard Vivier, director of the Higher Institute of Labor in Paris, which studies labor relations for unions and companies. “Cars are much more complicated today than they were 40 years ago. Why shouldn’t the labor code be?”

The bottom line: With 2.9 million people out of work—the worst joblessness in 12 years—France may need to overhaul its rigid labor laws.

Why France Has So Many 49-Employee Companies - Businessweek

The MasterMetals Blog

May 8, 2012

Market Ignores ‘#Taxmageddon’ to Its Peril: Manager CNBC.com

A $500 billion time bomb is about to explode...

CNBC.com Article: Market Ignores 'Taxmageddon' to Its Peril: Manager 

According to one leading hedge fund manager, the recent rise in stocks is a temporary one that will be thwarted by the coming period known as "Taxmageddon."

Read the Full Story:
http://www.cnbc.com/id/47259089

May 3, 2012

Canadians Dominate World’s 10 Strongest Banks - Bloomberg


Canadians Dominate World’s 10 Strongest Banks

Bloomberg Markets Magazine
Banks from Citigroup Inc. (C) in the U.S. to BNP Paribas SA (BNP) in France are racing to shed assets and raise money ahead of new global capital rules that start taking effect in 2015. For Canadian lenders, these moves have created the opportunity to go on a shopping spree.

Canada’s six largest banks have spent $37.8 billion since 2008 on about 100 acquisitions at home and abroad, Bloomberg Markets magazine reports in its June issue.

“We and our Canadian competitors are only able to do that because we have some flexibility as a result of our strength,” says Gerald McCaughey, chief executive officer of Canadian Imperial Bank of Commerce, which bought JPMorgan Chase & Co.’s minority stake in asset management firm American Century Investments last year. “Over the longer term, this should actually help to maintain the strength of the Canadian banking system and its competitiveness.”

CIBC (CM) was No. 3 in Bloomberg Markets’ second annual ranking of the world’s strongest banks, followed by three of its Canadian rivals: Toronto-Dominion Bank (TD) (No. 4), National Bank of Canada (NA) (No. 5) and Royal Bank of Canada (No. 6), the country’s largest lender. Bank of Nova Scotia ranked 18th, and Bank of Montreal was 22nd.

OCBC Is No. 1

Singapore’s Oversea-Chinese Banking Corp. retained the title of the world’s strongest bank for the second year, followed by BOC Hong Kong Holdings Ltd. (2388) Two other Singaporean lenders -- United Overseas Bank Ltd. (UOB) (No. 7) and DBS Group Holdings Ltd. (DBS) (No. 8) -- were also among the strongest. “Singapore’s economy has performed quite stably and quite well, and for the Singaporean banks, we have real economic activities to finance,” Oversea-Chinese Banking CEO Samuel Tsien says. He credits the bank’s strength partly to its risk management practices.

No other country dominated the list as did Canada: The nation of 34.7 million people has only eight publicly traded banks, two of which are regional lenders. Only three U.S. banks -- JPMorgan Chase (JPM) (No. 13), PNC Financial Services Group Inc. (PNC) (No. 17) and BB&T Corp. (BBT) (No. 20) -- made the top 20. Four European banks were included: two from Sweden and one each from the U.K. and Switzerland.

$100 Billion or More

For the ranking, we considered only banks with at least $100 billion in assets. We weighed and combined five criteria, comparing Tier 1 capital with risk-weighted assets, for example, and nonperforming assets with total assets. Tier 1 capital includes a bank’s cash reserves, outstanding common stock and some classes of preferred stock, all of which combine to act as a buffer against losses.

Banks that posted an annual loss for last year or that failed government stress tests weren’t eligible for consideration.

Canadian banks invoke their strong capital levels, the country’s conservative lending culture and strict regulatory oversight under a single supervisor as reasons for their showing. The supervisor requires Canadian banks to hold a higher level of capital than do international standards.

Major banks around the world follow the rules of the Basel Committee on Banking Supervision -- an arm of the Bank for International Settlements, based in Basel, Switzerland, that draws banking regulators from 27 nations to set standards for lenders. The committee issued its first internationally accepted capital guidelines in 1988.

Beyond Basel

Those rules, known as Basel I, focused on credit risk: the possibility that borrowers might not pay back their bank loans. The committee required banks to hold total capital, at least half of it in Tier 1 capital, equal to at least 8 percent of their risk-weighted assets.

Canada’s regulator, the Office of the Superintendent of Financial Institutions Canada, has gone beyond those levels in its requirements, a stance that has shielded lenders from some of the financial follies that undermined other global banks, especially in 2008. As far back as January 1999, OSFI sent a letter to Canadian banks telling them to set aside at least 10 percent of total capital as a cushion for losses. “I do not think it was popular at the time,” says Julie Dickson, OSFI’s superintendent. “That’s where having a supervisor with a pretty clear mandate allows you to take those unpopular decisions.”

Exceeding Requirements

The Canadian regulator also set criteria on the quality of banks’ assets, requiring them to hold 75 percent of their capital in equity. “When the crisis erupted, we realized we had stuck to a fairly basic rule, which was that the bulk of Tier 1 capital had to be in equity,” Dickson says. “That turned out to be very, very important.”

Some of Canada’s lenders elected to exceed OSFI’s requirements. Investors criticized Bank of Nova Scotia (BNS), CEO Richard Waugh says, for holding too much cash. “So many people in 1999 and 2001 said: ‘Scotia, you’ve got excess capital because you’re way above Basel, way above OSFI. You should do stock buybacks and extra dividends,’” Waugh recalls in an interview at an annual investor meeting in Saskatoon, Saskatchewan. “We said, ‘It’s not excess, because it was getting 18 percent return on capital, which was a very good place, and our shareholders would have had a difficult time reinvesting elsewhere.’”

Waugh credits the high returns to profits spread equally among four main businesses: global wealth management and domestic, international and wholesale banking.

Internal Models

Since 1988, the BIS has further tweaked global rules. The 2004 Basel II accord set more guidelines on how to address and quantify the risks of a bank’s assets -- allowing them to use internal models, for instance.

And in 2010, regulators rewrote the rules again to address shortcomings that arose out of the financial crisis. The group will require banks to hold 7 percent of their assets as core reserves, or equity core Tier 1 capital, by 2019 when the latest rules -- known as Basel III -- are fully implemented. Banks will be required to have minimum Tier 1 capital of 6 percent starting in 2015.

While having strong capital is crucial, Canadian banks will prosper only if they can expand their reach, Waugh says. “Because if you don’t grow, you’re going to eventually have some issues on capital and strength,” he says. Scotiabank has units in about 50 countries and is looking in particular at Latin America and Asia, says Waugh, who’s also vice chairman of the Washington-based Institute of International Finance.

Expanding in the U.S.

Canadian banks spent $14.4 billion last year on acquisitions, many of them aimed at growth in the U.S. “Having conservative capital standards in Canada going into the downturn clearly was a competitive advantage,” TD Bank CEO Edmund Clark says. He says Canada’s second-biggest bank was ferocious at managing liquidity.

TD Bank has accelerated a U.S. expansion strategy that Clark began in 2004. In 2008, the bank took over Commerce Bancorp of Cherry Hill, New Jersey, in a $7.1 billion transaction that helped give the Canadian lender 1,284 branches in the U.S. today -- more than the 1,150 it currently has in Canada. TD’s green logo is now a common sight on the streets of New York, where it aims to become the city’s third-largest lender by number of branches within four years, and in Boston, where its name adorns the TD Garden, home to the Boston Celtics basketball team and Boston Bruins hockey team.

‘Once-in-a-lifetime Opportunity’

“We were in there and said: ‘We have a once-in-a-lifetime opportunity. Let’s take advantage of it,’” Clark says. Toronto- Dominion -- one of four banks globally to boast the top Aaa long-term debt rating from Moody’s Investors Service -- added further to its U.S. clout last year when it acquired auto lender Chrysler Financial Corp. from Cerberus Capital Management LP.

Bank of Montreal (BMO), Canada’s fourth-largest lender, also ramped up its presence in the U.S. by buying Marshall & Ilsley Corp., a Milwaukee-based bank, last year for $4.19 billion. Prior to that, its main U.S. asset had been the small Chicago- based Harris Bank franchise it bought in 1984.

Royal Bank has also been active. In April, it agreed to buy the 50 percent of RBC Dexia Investor Services Ltd. it didn’t already own from Banque Internationale a Luxembourg SA for about C$1.1 billion ($1.1 billion) in cash.

As they flex their muscles with acquisitions, Canadian banks may face tougher times ahead. Consumer lending is slowing this year. RBC Capital Markets predicts that Canadian bank profits will rise 7 percent in 2012, slightly more than half the 13 percent rate in 2011.

Stocks Outperform

Canadian bank stocks have outperformed those from south of the border. In the four years ended on Dec. 31, the Standard & Poor’s/TSX Composite Commercial Banks Industry Index (STCBNK) that tracks Canada’s eight traded banks rose 4.8 percent compared with a 56 percent decline for the 24-member KBW Bank Index (BKX), which includes the biggest U.S. banks.

Canadian banks haven’t been completely immune to the woes faced by their counterparts in the U.S. and Europe in recent years. CIBC had more than C$10 billion in writedowns following the U.S. mortgage-related financial crisis of 2007, more than any other Canadian bank. CIBC also was one of the first to rebuild its balance sheet, selling C$2.94 billion of stock nine months before Lehman Brothers Holdings Inc. collapsed and markets seized up. Still, writedowns at Canadian banks were a fraction of the $2.08 trillion taken by financial companies worldwide.

There’s no reason for Canadian banks to become smug, the country’s banking regulator says. “Complacency is a real danger for Canada,” OSFI’s Dickson says. “The bar is always rising in risk management, and if you become complacent, you may say you’re doing a good enough job and you don’t really have to change anything.”

To contact the reporters on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net; Sean B. Pasternak in Toronto at

spasternak@bloomberg.net

To contact the editors responsible for this story: Laura Colby at lcolby@bloomberg.net; David Scheer dscheer@bloomberg.net.

Read the story online here: Canadians Dominate World’s 10 Strongest Banks - Bloomberg

The MasterMetals Blog

May 1, 2012

CNBC.com: Spain Default Could Hit US Market 10%-20%: Economist

CNBC.com Article: Spain Default Could Hit US Market 10%-20%: Economist

Is Spain the next one to default?  The numbers are a lot worse than for Greece. 

Spain's newly announced recession won't be ending any time soon and it could force the U.S. stock market to fall anywhere between 10 percent and 20 percent, economist Harry Dent told CNBC Monday.

Read the Full Story:
http://www.cnbc.com/id/47232833




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