Brian Bollen's Blog

All the playing's stopped in the playground now...

Bill Blain’s Morning Porridge – April 30 2012

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

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: [email protected]

Sorry for late comment this morning. A combination of trains, storms and computers!

What we got to look forward to this week? Markets feel a tad more constructive on higher earnings and commodities, but we've got US employment data this Friday, and I got a soggy feeling about it – just my usual pessimism perhaps. Preparing for the worst means I’m seldom that disappointed.

Meanwhile, UK premier David Cameron’s observation the Euro-crisis isn't half-way done crystalised some of my thoughts on Euro-sustainability over the weekend. There is a determination across Europe for the Euro to succeed which we should not underestimate. It’s all-too-easy for we Anglo-Saxon cynics to look at Europe and rationalise it’s an unfixable mess – which misses the effort that is going in to make it work. However, even if Europe moves from austerity to more electorally sustainable period of growth based policies, it’s going to take years for the structural changes necessary across Europe to take effect.

Any aid to a present bad bank is the surest mode of preventing the establishment of a future good bank..

Bill Blain’s Morning Porridge – April 27 2012

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

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: [email protected]

Any aid to a present bad bank is the surest mode of preventing the establishment of a future good bank..

As we wake up to a Spanish downgrade I suspect the market is going to feel as bad as I do. A gang of us decided to solve Spain’s economic plight in a Tapas Bar last night, and it went tragically wrong. Much like the Spanish economy, we’re waking up to chronic lethargy, zero growth prospects and a grumpy she-who-will-shortly-be-Mrs-Blain blaming her hangover on me.

S&P cut Spain to BBB+ - still a few stumbles above junk. 'Spain’s trajectory will likely deteriorate against a background of economic contraction.' No S*** Sherlock. The critical aspect of the downgrade is just how much the Spanish will have to support the banking sector – 'as a consequence, we believe there are heightened risks that Spain’s net general government debt could rise further'.

And therein lies my subject matter for today’s Friday rant.. European banks – just how pants are they?

I’ve been saying for years

Any aid to a present bad bank is the surest mode of preventing the establishment of a future good bank..

Bill Blain’s Morning Porridge – April 27 2012

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

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: [email protected]

Any aid to a present bad bank is the surest mode of preventing the establishment of a future good bank..

As we wake up to a Spanish downgrade I suspect the market is going to feel as bad as I do. A gang of us decided to solve Spain’s economic plight in a Tapas Bar last night, and it went tragically wrong. Much like the Spanish economy, we’re waking up to chronic lethargy, zero growth prospects and a grumpy she-who-will-shortly-be-Mrs-Blain blaming her hangover on me.

S&P cut Spain to BBB+ - still a few stumbles above junk. 'Spain’s trajectory will likely deteriorate against a background of economic contraction.' No S*** Sherlock. The critical aspect of the downgrade is just how much the Spanish will have to support the banking sector – 'as a consequence, we believe there are heightened risks that Spain’s net general government debt could rise further'.

And therein lies my subject matter for today’s Friday rant.. European banks – just how pants are they?

I’ve been saying for years

For a moment there I thought we might be in trouble…

Bill Blain’s Morning Porridge – April 26 2012

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

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: [email protected]

For a moment there I thought we might be in trouble…

This morning markets have lots to contend with. A slew of European banking results, and more European economic data – I’m certainly not positive about Eurozone confidence data! Last night’s supportive US Fed comments boosted markets, but recent US economic numbers have been much weaker than you’d expect for an economy that’s supposedly in take-off mode – plus there was a subdued warning about inflation.

I’ve got a nagging feeling global growth remains a flatline case – with all the noise about US and China growth later this year being more an expression of hope than grounded in economic reality.

More on bank results tomorrow, although Barclays set the tone with some decent numbers, but lots of pull backs from rising impairments and provisions. Although Q1 was strong, the markets have demonstrated the first three months won’t establish a trend for the year! Deutsche went the other way – missing estimates despite a good trading quarter. Watching that space.  

As we open this morning, markets are also digesting LCH Clearnet hiking margins on certain French and Spain assets. Got a feeling it’s going to end up a Fear On/Risk off day!

European politics – you really do have to laugh. Otherwise it would just hurt too much. The politics of growth versus the reality of austerity will define markets for coming months. The UK edged into double dip recession yesterday on the back of collapsing consumer sentiment and government austerity. Across Europe, it’s going to be a magnitude or two worse – although the austerity binge is now being tested at the ballot box.

Dutch election in September means months more political guff about will they/won’t they eat another slice of austerity pie. A desperate Sarkozy played a French Referendum on the Stability Pact card yesterday, while Hollande is tub-thumping his demands for a financial transactions taxes and to socialise Europe’s debt through the Eurobond concept – something the Germans can’t agree to.

Even hardened cynics in the City of London now favour Sarkozy. Despite years of heightist abuse about the French President, suddenly London has woken up to the fact he is likely to go, and the alternative could be a real problem for the City.

But the UK has its own problems as growth dips, and the papers are dominated by the oh-too-cosy Murdoch-Establishment axis. Apparently it means London will have the delight of a Leftist Red-Ken Livingston local government rather than good ole Boris Johnson– the Brits really have gone off Eton toffs leading them. I suspect UK is going to face some serious problems once the Olympic spending binge is out the way and folk wake up to the reality a 500 foot square flat in the wastes of Docklands is worth less than its building materials!

(Notice I abuse all nations equally in the Porridge – I’ve been accused of many things, but the only ones I shall contest are the charges of being an Anglo Saxon or Brit.. I’m a Scot.. which of course gives me the divine right to be rude about everyone else and take great offence if you ever criticise us. Bit like being a Frenchman squared!)

There is much London might learn from what’s going on across La Manche. I am indebted to my French colleague who pointed out M. Hollande’s previous administrative expertise is confined to the French region of Correze where he managed to make it France’s most heavily indebted region. He bought 5,400 iPads for key staffers and hired 50% more govt employees to use them. Debt increased by 25%. Taxes went up. Balance sheet of region turned profoundly negative!

But next, an apology of sorts.

Yesterday’s Porridge got me a spanking from a number of German friends. Many think I was having a pop at them, but I was trying to make the point that if a French government turnover can roil markets this much, what ructions will a German government roll next year trigger?

My German friends made the point Germany has done very well from the Euro, and would never 'just walk away'.  One particularly good German friend shook his head in sadness and told me… “Bill, Bill, Bill.. you are such a typical Brit. You just don’t understand the German mindset. No matter which party will win the elections next year, none will question German membership of the common currency. Therefore German elections are not a time line for European crisis.”

I accept the correction, but I’m not sure the market will. The mood of the markets is now profoundly skeptical on European politics. Germans clearly know their country better than I, but as an outsider or investor looking in I’d have to be nervous about Germany and the Euro ahead of next year’s elections if the pace of European political turmoil increases.  

More to the point, as European electorates increasingly refuse to swallow further austerity medicine, the Germans will find themselves increasingly isolated. It’s just as well Europe doesn’t have some critical high-level crisis summit on the calendar this month as I suspect no European politician would risk a photo-op next to Merkel at this point! History will likely record the Germans sticking to their principles and promises, but unfortunately that’s not default mode across the rest of Europe.

Anyone I’ve not offended this morning? Form an orderly queue.

Out of time...

 

More QE Ahead As UK Slips Back Into Recession?

Azad Zangana, European economist at Schroders, comments:

The ONS’ preliminary estimate of Q1 GDP showed the economy had contracted by -0.2%. As this follows a -0.3% contraction in the economy in the final three months of last year, it means that the UK economy has slipped back into a technical recession. Year on year growth fell to zero.

Within the details, the Construction sector made the biggest negative contribution by shrinking by 3%, while output from the industrial sector also fell by 0.4%. However, the biggest disappointment was the service sector which was widely expected to grow by about 0.5%, only managed 0.1% on the quarter.

Commentators will

It may not be a very good miracle, but it's good enough for me...

Bill Blain’s Morning Porridge – April 25 2012

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

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: [email protected]

It may not be a very good miracle, but it's good enough for me...

Another interesting day in the Euromarkets – politics dominated the news flow, yet the markets staged a resurgent day with the troubled sovereign issuers staging strong rallies on the back of very technical (and small), but modestly successful auctions. It all showed a certain amount of predictability.

But don’t worry about Europe.. Apple will save us all. As every man, woman and child on the planet spanks their dole money on the latest 'bright shiny thing that makes it all better' we can relax safe and secure in the knowledge the remorseless rise of Apple stock will pay all our pensions into infinity.

Don’t believe it. Apple is today’s particular market darling. Where is Microsoft now? Got to say...this new Samsung phone looks good...Isn’t the I-Phone looking a tad jaded these days? (And, do you know any kids under 18 still wanting I-Phones? Crackberries for choice… sell!)

But back to sheer bloodstained misery that is Europe..

Things fall apart, the centre cannot hold...

Bill Blain’s Morning Porridge – April 24 2012

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

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: [email protected]

Things fall apart, the centre cannot hold...

I might have underestimated the latest iteration of the risk-off/fear-on dynamic yesterday. I was expecting calmer market acceptance of the growing political risks across Europe (France and Netherlands most obviously), and for market participants to look to play any market overreaction – mixing Dutch, Oats and Bunds against each other, and that kind of thing. Instead we got a massive flight to quality with bunds, treasuries and gilts the only gainers as activity in other markets stalled.

The mood wasn’t helped by a series of miserable economic releases highlighting Spain in official recession, slowing German economy and abandon all hope ye who enter here across the rest of Europe. Eurostat data show the Eurozone debt load underling this crisis is actually rising rather than decreasing. So much for austerity!  

It's not just fixed income.

Hedge Funds Top Over 17 Years

Hedge funds significantly outperformed traditional asset classes such as equities, bonds and commodities over the last 17 years according to a new study by The Centre for Hedge Fund Research at Imperial College in London. The research, commissioned by KPMG, the international audit, tax and advisory firm, and the Alternative Investment Management Association (AIMA), the global hedge fund association, is described as the most comprehensive of its kind to date.

The report, entitled “The Value of the Hedge Fund Industry to Investors, Markets and the Broader Economy”, found that, per annum, hedge funds returned 9.07% on average after fees between 1994 and 2011, compared to 7.18% for global stocks, 6.25% for global bonds and 7.27% for global commodities. Moreover, hedge funds achieved these returns with considerably lower risk volatility as measured by Value-at-Risk (VaR) than either stocks or commodities. Their volatility and Value-at-Risk were similar to bonds, an asset class considered the least risky and volatile. The research also demonstrated that hedge funds were significant generators of alpha, creating an average of 4.19% per year from 1994-2011.

“This research is powerful proof of hedge funds’ ability to generate stronger returns than equities, bonds and commodities and with lower volatility and risk than equities,” said Andrew Baker, AIMA’s CEO.

Portfolios including hedge funds also outperformed those comprising only equities and bonds, The Centre for Hedge Fund Research concluded. The study showed that such a portfolio outperformed a conventional portfolio that invested 60% in stocks and 40% in bonds. The returns of the portfolio with an allocation to hedge funds also yielded a significantly higher Sharpe ratio (which characterises how well the return of an asset compensates the investor for the risk taken) with lower tail risk (the risk of extreme fluctuation: see http://www.brianbollen.com/bbb_brian_bollens_blog/2012/04/killie-break-celtic-but-will-euro-break-too.html).

SGSS Trumpets Grindrod Mandate

Societe Generale Securities Services (SGSS) tells us it has been mandated in South Africa by Grindrod Bank to provide custody and trustee services for its *Preference Share Exchange Traded Fund, PrefEx, which was launched on 28 March 2012. It adds that this is the first Preference Share Exchange Traded Fund to be listed on the Johannesburg Stock Exchange.

It explains how the mandate results from the local and international expertise that SGSS has built up in custody and trustee services in South Africa, where it has been providing local securities services to domestic clients for over 20 years.

Catch Up With The KIIDs: RBC Dexia

Key Investor Information Documents (KIIDs) become a legal requirement for all UCITS funds on July 1. But with just 10 weeks to go, Martin Bock from RBC Dexia argues that some asset managers are underestimating the step change involved, neglecting the competitive opportunity KIIDs offer and ignoring the brand damage that could result if they are not compliant in time.

A step change for the industry, and one that asset managers underestimate, KIIDs are more than just a document or legal requirement, he says. “They will completely change the way that financial information is prepared and distributed in Europe, and are part of a wider global trend towards short form documents that provide greater transparency to investors.”

A fool thinks himself to be wise, but a wise man knows himself to be a fool...

Bill Blain’s Morning Porridge – April 23 2012

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

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: [email protected]

A fool thinks himself to be wise, but a wise man knows himself to be a fool...

Politics will undoubtedly provide the pepper in this week's financial melting pot. As always it’s about how the market overreacts to the oh-so-predictable newsflow. Nothing unexpected about Hollande winning the first round of the French election, but it was close and the fact the extreme right wing under Le Pen did so well is perhaps perversely more positive for Sarkozy than worst case pundits expected. Any overreaction in French spreads could well be a buying opportunity.

The fact Madame Lagarde got loads more money for the IMF to spank at Europe’s problems predictably got loads of coverage over the weekend – but how relevant is it? Less than the media thinks. Giving the IMF has more firepower is reactive - nothing is likely to change in terms of reducing the likelihood that money will be required. Economic releases this week will likely confirm declining confidence across Europe thereby escalating the likelihood of domestic voters voting against Austerity – the default voter association for Europe.

Perhaps more surprising is the imminent melt-down in Dutch politics – which we previewed last week. Not that it’s happened, but that it’s not happened elsewhere YET. A turnover in the Dutch government, and the inevitable swing towards more sceptical anti-Europe politics, could well generate increased uncertainty about the sustainability of the Euro-illusion – especially if it repeats in other increasing skeptical Euro economies.

Risks To Growth: Schroders' Jolly Robert

Amidst ongoing Eurozone concerns and uncertainty surrounding Spain, Schroders’ head of global macro, Bob Jolly, discusses his tactical approach in light of his outlook for the global fixed income markets

“The risks to growth expectations could go either way, so we expect markets to remain nervous and levels of volatility to remain elevated. We believe the best approach in this environment is to trade tactically instead of taking any significant strategic positions.

“However, we are still taking a strategically positive view on the prospects for US growth. We are less bullish about the US economy than we were a month ago, but expect it to continue to provide some positive surprises. Meanwhile, we expect Asia to continue to outperform expectations and Europe to remain the laggard.

“Credit remains a major focus and bias

Standard Life Creates EM Bond Team

Standard Life Investments says it is creating an emerging markets bond team. This team will be lead by Richard House, as head of emerging market debt, together with Mark Baker and Nicolas Jaquier who will join as investment directors, global emerging market bonds.

 

ICON Midwife Communicates Urgency

Sometimes there are stories of which I do not understand a word, but feel the need to share nevertheless, if only because of the breathless sense of urgency that the midwife of the press release has managed to inject. This is one of those stories. Enjoy!

ICON Corporate Finance has advised my-Channels on its sale to Software AG. my-Channels provides extremely fast (low latency) messaging software which will enable Software AG’s customers to integrate their enterprise applications, cloud based applications, and mobile devices through a unique, universal messaging layer. Customers will now have the ability to stream large volumes of critical data to employees, customers and partners anywhere, over any channel and to any device. This is a major step in implementing Software AG’s strategy for the in-memory management of Big Data.

Apres moi, le deluge

Bill Blain’s Morning Porridge – April 19 2012

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

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: [email protected]

Apres moi, le deluge

I don’t expect Spain’s modest €2.5bn auction will prove too testing this morning. Axel Wiedemann was right – Spain’s brief flirtation with 6%-plus yields earlier this week proved not to be the end of the world. End of the World is book for later. Spain is not a short-term issue – it will remain a festering pluke on the Euro’s posterior for the long term.

Spain wisely front-loaded much of 2012 funding into the LRTO-boosted first quarter. As Spain bad loans accelerate through 8%, the recapitalisation of the sector will no doubt require government support – and that’s when I expect the EFSF to make a banking injection, dressing a bailout as specific bank support.

Which means nothing’s really set to change for the Spanish economy or bond outlook – more austerity, rising social tensions and zero growth. There isn’t an obvious moment or event that might turn the Spanish pustule into a gangrenous life-threatening crisis. Spain in trouble – get used to it.

But it’s that moment that

BNPPSS Adds HK

BNP Paribas Securities Services (BNP Paribas) reports that it has added Hong Kong to its cross-border fund distribution network, enabling it to support non-Hong Kong-domiciled fund managers’ distribution requirements in the region.

It says the move simplifies and optimises global fund managers’ access to Hong Kong by making it easier for them to register funds for distribution and interact with their local institutional investor clients more efficiently. The use of local registered fund representatives is a legal requirement for foreign managers in Hong Kong.

‘Human Factor’ Indispensable For Asset Management

“Interconnections between global capital and financial markets have grown enormously. The complex dynamics cannot be understood using mathematical models,” according to Furio Pietribiasi, Chairman of the Board of Directors of Gamax Management AG (Gamax). Pietribiasi says that pure quant models are insufficient to deal with the psychological factors that have dominated the markets, especially recently.

The ‘human factor’, meaning the subjective assessment of market development by one or more portfolio managers, he says, is an indispensable element for success. “Sentiment indicators are a proven tool when it comes to better grasping the often emotional rather than rational decisions made by market participants. Of course evaluating macroeconomic factors still remains the key basis for investment decision making,” says Pietribiasi.

Solving the sovereign debt crisis will require

Schroders Launches Global Multi-Asset Income Fund

Schroders announces the launch today (April 18) of Schroder ISF Global Multi-Asset Income, which aims to provide sustainable quality income by dynamically investing in attractive income opportunities across a range of asset classes, regions and sectors. 

The firm says Aymeric Forest, senior multi-asset fund manager, will manage the fund with the objective to pay a distribution of 5% per annum in equal quarterly or monthly instalments with an expected 7% total return per annum over a full market cycle. Forest, supported by the multi-asset team, will manage this as a well-diversified and directly-invested fund that aims to offer quality income with more stable expected returns than could be easily achieved with a single asset class solution.

Verdict first… trial later…

Bill Blain’s Morning Porridge – April 18 2012

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

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: [email protected]

Verdict first… trial later…

I’m genuinely intrigued as to who bought €1.8bn of 2038 bonds from the EU yesterday? It’s good to know there is so much confidence around… a few months ago we would have struggled to have found buyers of European institutions – but those who did and mopped up cheap EIB and EU bonds in dollars have generally done well. Spotting when the markets have over-reacted to European ructions is a sure-fire profit generator.

Meanwhile…it seems I have been utterly wrong about imminent crisis in Spain. Silly me. Bond yields back below 6%. Apparently ‘no problema’ for Spain following its wonderfully successful short-term debt auction yesterday. (At rates which were nearly double of last auction…er?) Banks have got plenty of money after

JPMWSS Reaches For The SKY

J.P. Morgan Worldwide Securities Services (WSS) says it has been selected by SKY Harbor Global Funds, a Luxembourg registered UCITS IV investment company, to provide global custody, transfer agency, fund administration and fund accounting for SKY Harbor’s newly launched US High Yield and US Short Duration High Yield sub-funds.

It describes SKY Harbor Capital Management, LLC, the investment adviser for the sub-funds, as a high-yield fixed income specialist based in Greenwich, Connecticut. The sub-funds will be registered in various European countries with a range of currency-hedged classes available for institutional investors.